Economics: Building The US-Azerbaijan Relationship

Daniel S. Sullivan, Assistant Secretary for Economic, Energy and Business Affairs
Remarks at American Center, University of Language
Baku, Azerbaijan
August 16, 2007

Economic Engagement: Building the U.S.-Azerbaijan Relationship

Thank you very much Mr. Semed Seyidov for your kind introduction.

Great to be back in Azerbaijan. Each time I visit Baku I feel the energy of a changing, growing and modernizing economy. I can actually see changes that have taken place since my last visit in February – new roads, bridges and buildings all around the city. Clearly Baku is taking its place as a key regional economic hub. The Azerbaijani economy is taking off, and the country’s oil and gas revenues have the potential to transform the country and the lives of the people here.

The United States has deep and long-term interests in the Caspian region. We are committed particularly to helping ensure Azerbaijan’s prosperity, independence, and sovereignty. And we fully support President Aliyev’s commitment to making Azerbaijan a modern, secular, democratic, and market-oriented state. Azerbaijan’s key role in global energy security, our important cooperation on regional security, and the country’s strategic position as the natural gateway between Europe and Central Asia make it an essential partner for the United States.

Over the past year, due in large part to the intensive efforts of our Ambassador and your officials, we have intensified our engagement with Azerbaijan across three critical areas: 1) democracy and democratic reform; 2) security cooperation; and 3) energy cooperation and economic reform.

Now, my Bureau, as the Assistant Secretary of State for Economic, Energy, and Business Affairs, I focus on the third area – energy and economic cooperation, but we it’s important to recognize that all three of these areas are absolutely very interconnected. We look for progress in all three because progress in each of these three areas reinforces progress in the others and we believe that these three areas moving forward will lead to lasting security, stability, and prosperity that all citizens desire and deserve.

Energy Cooperation

So let me first talk about the critical area of energy cooperation between our two countries. We have a well-established history of cooperation and trust in the field of energy. The Baku-Tbilisi-Ceyhan (BTC) pipeline – which as you know, is one of the most modern, state of the art pipelines in the world – is a symbol and testament to that critical cooperation. Azerbaijan’s regional leadership was essential to bringing the BTC vision to reality.

We are building on this tradition of close cooperation in the energy field. This past March, my boss at the State Department Secretary of State Condoleezza Rice and Foreign Minister Mammadyarov signed a memorandum of understanding formally establishing the U.S.-Azerbaijan Energy Dialogue. I co-chair this Dialogue and we had very constructive meetings to further advance our common energy security goals in this area.

What are these goals? Well, as we announced today, during the signing of a U.S. Trade and Development Agency grant that will go to SOCAR. We believe we are now embarked on the next stage of Caspian Energy development, which would entail a number of things: 1) enhanced production of oil and gas in Azerbaijan’s offshore sector; 2) continued natural gas exports to Georgia and Turkey, and initial exports to Greece and Italy; 3) further work on the Nabucco pipeline project, with Azerbaijan’s and perhaps Central Asia’s gas moving to markets in Central Europe, and 4) the emergence of Azerbaijan as an oil and gas transit country, as Azerbaijan continues its outreach to Turkmenistan and Kazakhstan.

Azerbaijan’s continued leadership will be essential to achieve these goals, as we continue cooperation between the U.S. and Azerbaijan, as well as working to deepen the cooperation between Azerbaijan and our European allies and the European Commission. The commencement of the next phase of Caspian energy development, we believe has already begun. As I mentioned, today we signed a rather large feasibility study to construct an oil and gas pipeline connecting Central Asia to Azerbaijan. This is a big and important step and it is the beginning of many good things to come in terms of the next phase of Caspian energy development. We believe the opportunities in this sector are great and can lead to lasting opportunity for the people of the region. Now is the time to seize these opportunities.

U.S.-Azerbaijan EPC

The next thing I wanted to talk about was the Economic Partnership Commission that we launched in February. We are seeking to support economic stability and prosperity in Azerbaijan through our work on the U.S.-Azerbaijan EPC – as we call it – which I launched with Minister Sharifov in February of this year. Again, we met today and reviewed goals, reviewed progress, and took stock of what we’ve been doing. We’ve made a of the EPC are to strengthen and deepen economic and commercial engagement between our two countries and ensure Azerbaijan’s continued, sustainable development, wise use of its energy resources and revenues, and successful transition toward a market economy. A healthy empowered private sector is key to broad and sustained economic growth. I am in Azerbaijan to take stock of the EPC progress we have made and to help set future goals under the EPC.

In terms of broader economic principles, we think its very important to recognize that while petroleum revenues are indeed a blessing, that this country has definitely been blessed with, wise management of these revenues is essential to long-term economic health and stability. Over-dependence on the petroleum sector will affect the long-term health of the economy. So, one of the important elements that we focused on in these meetings is looking at ways to cooperate to help Azerbaijan diversify its economy, not only focusing on the energy sector, but the non-energy sectors of the economy. We also focus on the issue of macroeconomic stability, particularly with regard to inflation, because this is another issue for countries taking in large revenues from oil that can have an impact with regard to inflation. This is another area where we are working together to keep the focus on that. Finally, the development of Azerbaijan’s financial sector is also key to achieving sustainable growth and developing, particularly, in the non-oil sector in terms of its goal of economic diversification.

Corruption and Transparency

Let me talk very quickly about another issue that is among the utmost concerns of the EPC and that is corruption and transparency. We are working closely with the Government to help it redouble its efforts to promote transparency and fight corruption. By implementing trade agreements and integrating into the global economy, Azerbaijan’s political institutions will mature and become more effective. Accountable institutions strengthen civil societies. To succeed in the global economy, nations need fair and transparent legal systems; free markets that unleash the creativity of their citizens; banking systems that serve people at all income levels; and a business climate that welcomes foreign investment and supports local entrepreneurs. As courts resolve commercial disputes, they grow better able to resolve civil and political disputes. As institutions enforce the laws for business, they get better at enforcing the democratic laws of a society. As transparency is fostered to fight corporate corruption, it becomes harder for political corruption to go unnoticed. And these obviously are all points that get to what I was saying at the beginning of my remarks which is that all of these things that we are focusing on are interrelated.

Both U.S. and Azerbaijani businesses have said repeatedly that corruption is the greatest risk in the business environment. Now, from my many meetings that I have had here in February, in Washington, D.C., and with Azerbaijani officials during this trip, there appears to be the necessary commitment to fight corruption. But what we believe is needed is a strong and sustained effort to implement this commitment into action – and that is very important. Ambassador Derse, who has been outspoken and a proponent of this issue has focused on this issue of corruption. She laid out 6 criteria that we view as very important with regard to implementing this into action. I want to reiterate those. The 6 areas that we think should be included in Azerbaijan’s Anti-Corruption Plan are: the adoption of an anti-money laundering law and the creation of a financial intelligence unit to enforce it; public disclosure by government officials of all their financial assets; a transparent, competitive process for public procurement and management of public financing; specific deadlines for meeting GRECO and UN Convention obligations; a regular reporting and monitoring process with the participation of civil society to assess the implementation of anti-corruption measures; an independent, ethical, and professional media and strong government protection for freedom of the press so journalists can report effectively on corruption free from the fear of prosecution or personal harm.

As part of the EPC process, Azerbaijan has pledged to enact specific legislation to help fight the scourge of corruption. And can say from my meetings over the last two days that there has definitely been progress in moving this forward.

WTO Accession

Now the next issue, the final issue I want to discuss, and it is related to some of the others, is the issue of WTO accession – something that we are also focusing on in the EPC. We believe that accelerated accession to the WTO will help create the transparent legal and regulatory environment necessary to combat corruption, as well as to attract trade and investment. President Aliyev’s commitment to WTO accession and the legislative agenda to bring Azerbaijan’s trade regime into WTO compliance have reinvigorated Azerbaijan’s accession process. Again, during my meetings over the last two days, it was clear that this issue has been the focus of top-level government officials and we believe there has been significant progress over the last 9 months. We fully support this progress and Azerbaijan’s accession to the WTO and we look forward to holding our bilateral negotiations on the basis of revised offers in the negotiation process. As I mentioned, the EPC is also very focused on this issue. We have renewed our commitment to provide technical assistance on WTO accession and trade capacity building, which will help prepare Azerbaijan for its more thorough integration into the global economy.

We believe that Azerbaijan will start to reap the rewards of WTO accession even before it becomes a WTO member. The process of attaining membership helps bring countries into line with global trade standards, making them attractive for trade and investment. Azerbaijan can help itself the most by renewing its commitment and enacting the necessary legislation to bring its trade regime in line with WTO standards.

And a key to pressing ahead will be the need to help educate the public – and maybe you can do this - about the benefits of economic liberalization, diversification, and prosperity that WTO accession will bring. As I mentioned in all of my meetings over the past two days, this is not an easy task. As a matter of fact, it is a task that countries have to do regularly, including in the United States. Right now, in my country, there has been a very heated debate on the benefits of an open economy, and the benefits to continued economic liberalization. So it’s not just an issue for countries that want to join the WTO, it’s an issue for countries who were founding members of the WTO. So it’s not easy. We need to help educate the public. People like you can be ones to make the case. But we believe at the end that when you look at the costs and benefits, the benefits clearly outweigh the costs. The benefits for Azerbaijan, you can argue, are clear: 1) greater transparency which will help in the fight against corruption; 2) a more stable legal regime and business environment which will speed foreign investment and economic diversification; and 3) a more open economy which can reduce inflationary pressures and break monopoly power that stifles economic opportunity. So those are three of the many reasons that we think WTO accession will be helpful.

Conclusion

I want to conclude by saying that we are working together through the U.S.-Azerbaijan EPC and Energy Dialogue, the U.S. and Azerbaijan will deepen our already strong cooperation in the area of energy and economic policy. Your country has been blessed with a rich culture, wonderful heritage, abundant natural resources, and resilient, talented people. It is clear to me and hopefully it is clear to you that the future is bright here. But now is the time to extend and spread the opportunity and prosperity that this country has been blessed with. You will have a strong and reliable partner in the United States government and in the form of the people of the United States in helping you on this journey in economic and energy cooperation.

Thank you.

ENDS

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