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Cablegate: Kazakhstan: Customs Union with Russia and Belarus

VZCZCXRO6997
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTA #2570/01 3651044
ZNR UUUUU ZZH
O 301044Z DEC 08 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4236
INFO RUCNCIS/CIS COLLECTIVE 0987
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0387
RUEHKO/AMEMBASSY TOKYO 1093
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC 0462
RHEHNSC/NSC WASHDC 0559
RHEFAAA/DIA WASHDC
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ASTANA 002570

DEPT FOR SCA/CEN, EEB
PLEASE PASS TO USTR

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: PGOV ECON EFIN RS KZ
SUBJECT: KAZAKHSTAN: CUSTOMS UNION WITH RUSSIA AND BELARUS
THREATENS WTO ACCESSION BID

REF: ASTANA 2445

1. (U) Sensitive but unclassified. Not for public Internet.

2. (SBU) SUMMARY: Kazakhstan's WTO negotiator told the Ambassador
on December 24 Kazakhstan is ready to accelerate WTO accession
negotiations with the United States. However, the international
financial crisis is making some Kazahstani officials more hesitant
about the theoretical benefits of globalization. Instead, they see
immediate and tangible benefits from a possible near-term customs
union with Russia and Belarus. Aitzhanova acknowledged joining the
customs union could dramatically slow - or derail - Kazakhstan's WTO
accession. We know Russia has long opposed Kazakhstan's WTO
membership before its own accession. The new customs union, if
Kazakhstan follows through, as it currently seems likely to do,
would be a convenient way for Moscow to limit Astana's sovereignty.
To sell a WTO agreement to the president and prime minister,
Aitzhanova said she will need concessions from the United States,
especially on banking and financial services. She expressed
exasperation that USTR has not yet provided working-party report
comments from the June meeting in Switzerland. She added she also
needs a full agricultural package and a description of services.
END SUMMARY

3. (SBU) During a two-hour working lunch on December 24, the
Ambassador told Vice Minister of Industry and Trade and WTO
negotiator Zhanar Aitzhanova he had heard in September USTR is ready
to accelerate work on Kazakhstan's WTO accession and then heard in
early December from Kazakhstan's Ambassador to the United States
Erlan Idrisov that Kazakhstan is eager to move forward on WTO. He
passed Aitzhanova an edited version of the talking points USTR had
provided for this meeting.

4. (SBU) Aitzhanova responded that there is indeed political will
on both sides to move ahead, but, as a negotiator, she knows that
political will doesn't always translate into action. Because of the
world financial crisis, "the terms are more important to us than the
speed - what matters is the substance of the deal." She said Prime
Minister Masimov and President Nazarbayev continue to insist on the
best deal possible with clear evidence of concrete benefits for
Kazakhstan. Without adequate concessions from the U.S. side, she
said, she will not be able to sell them the deal. Further, the
financial crisis is increasing political opinion in Kazakhstan to
avoid more international economic integration. "Not everyone is
convinced we should go global," she said, noting that Kazakhstan's
banking sector is dangerously exposed to the international financial
crisis because of large-scale foreign borrowing.

WILL CUSTOMS UNION WITH RUSSIA TRUMP WTO?

5. (SBU) The Ambassador cited press reports that Kazakhstan is
preparing documents for April 1 to become a member of a
Russia-Belarus-Kazakhstan customs union, and asked if this could
derail Kazakhstan's WTO negotiations. At first, Aitzhanova
cautioned the United States not to see this as a threat but as a
political signal that the concept of enhanced regional economic
integration for protection against international economic shocks
might supersede calls for increased global collaboration.
Eventually, she acknowledged that formation of the customs union
would have a real impact on Kazakhstan's WTO bid and would force
renegotiation on multiple levels. She remarked that the customs
union presents tangible and immediately recognizable benefits that
appeal to decision makers, whereas WTO accession's benefits are
future and potential.

6. (SBU) Aitzhanova suggested that if U.S. WTO negotiators offered
no further concessions by April 1, 2009 - the date that a common
tariff agreement is due for the proposed customs union - it might be
hard to argue for WTO accession's precedence over the formation of
the customs union. "I am constantly asked by our leadership why
U.S. political support for our WTO accession is not translating into
actual progress. When I show them the costs of the agreements, they
say 'no.' To them, the benefits of the customs union are clear,

ASTANA 00002570 002 OF 002


while the benefits of WTO membership remain theoretical."

"THE BALL IS IN YOUR COURT, NOT OURS"

7. (SBU) Aitzhanova refuted USTR's view that "the ball is in
Kazakhstan's court," and said she is still waiting for USTR's
comments on the working-party report from their last meeting in June
in Switzerland. "The sooner we get it, the sooner we can start,"
she added. She lamented that the United States is slower in its
responses than her other negotiating partners like Australia, the
European Union, and Saudi Arabia. She said she is eager to
accelerate WTO negotiations with the United States, but will be
unavailable the first three weeks of January because she will be in
New Delhi finishing bilateral work in preparation for President
Nazarbayev's official visit to India at the beginning of the third
week of January.

8. (SBU) When asked what the United States can do concretely to
prepare for renewed negotiations, she said Kazakhstan needs the
working-party report comments from June, a full agricultural
package, and a description of services to be negotiated. Most
important, regarding the banking and financial services sector,
"Kazakhstan does not want anything that will further jeopardize us
at home - flexibility on your part is essential. This is our
political reality."

9. (SBU) COMMENT: In early December, Kazakhstan's ambassador in
Washington, Erlan Idrisov, told the Ambassador some in Kazakhstan
fear Russia is trying to lock CIS countries into the customs union
to control their WTO accession (reftel). We know Russia has long
opposed Kazakhstan's WTO membership before its own accession. The
new customs union, if Kazakhstan follows through, as it currently
seems likely to do, would be a convenient way for Moscow to take
advantage of the international economic crisis to limit Astana's
sovereignty. END COMMENT.

HOAGLAND

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