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24ECONOMIC SCIENCES
THE REPUBLIC OF AZERBAIJAN AND THE WTO: PROBLEMS AND PROSPECTS OF ACCESSION CONSIDERING ECONOMIC EFFICIENCY
Akhundova A.
Ph. D, lecturer at the department of World Economy,
Baku State University DOI: 10.5281/zenodo.6882311
Abstract
The article studies the prospects for the accession of the Republic of Azerbaijan into the WTO in terms of economic efficiency, its positive and negative aspects are examined. And as experts say, in the current situation, the subject of discussion should not be the question of joining or not joining the WTO, but how to enter the WTO so that Azerbaijan can benefit from it as much as possible.
Keywords: Azerbaijani economy, WTO, accession efficiency, agreements, trade and services.
Economy of Azerbaijan is the largest in the South Caucasus. Unlike Georgia and Armenia, our republic has considerable energy and other natural resources, has a more spacious domestic market, has huge transit opportunities and plays a key role in the development and implementation of major infrastructure projects, both of regional and international importance. Nonetheless, on the way to WTO accession, the republic turned out to be the last of the three countries in the region.
Azerbaijan is in no hurry to join the World Trade Organization, explaining its position by the fact that all the pros and cons of this step should be carefully considered. And there is a reasonable basis for this. As already noted, WTO membership, in addition to trade benefits, brings a lot of negative aspects to the country.
Currently, 21 states are involved in the process of joining the WTO. Almost all of them are countries with developing and transitional economies. Nevertheless, the status of WTO accession should not necessarily coincide with this definition. According to Article XII of the Agreement on the Establishment of the WTO, "Any State or separate customs territory possessing full autonomy in the conduct of its external commercial relations and the other matters provided for in this Agreement and the Multilateral Trade Agreements may accede to this Agreement, on terms to be agreed between it and the WTO" [1].
Azerbaijan's accession to the WTO can already be considered a relatively time-consuming process that has been going on for 18 years. Azerbaijan has had observer status in the World Trade Organization (WTO) since 1997, and negotiations on WTO accession have been underway since 2004 [2].
The main goals pursued by Azerbaijan when joining the WTO: [3, p. 16]
- accelerate the process of integration into the world economic system;
- use the benefits given to each other by the WTO member states;
- conduct trade operations based on common rules adopted by the WTO with most countries;
- by carrying out economic reforms in the country, to achieve growth in assistance from international organizations and countries;
- as a result of the adoption of WTO rules to attract even more foreign direct investment;
- to diversify the economy of Azerbaijan and get an opportunity to increase the export potential of the non-oil sector.
Azerbaijan officially applied for WTO membership on June 23, 1997, and immediately after that a working group was established and the country received observer status in the WTO. In the first step, Mr Henk (Germany) chaired the working group, and since 2000 it has been headed by another German expert, Mr Walter Lewalter [4].
Membership in the working group is open to all WTO member countries. But, as a rule, in the case of small countries, in particular countries like Azerbaijan, this group includes representatives of the so-called "Big Four" (The Quad) - the most influential members of the WTO: USA, Canada, EU and Japan [5].
The next step in the process of Azerbaijan's accession to the WTO was the preparation of a Memorandum on the foreign trade regime of Azerbaijan and its submission to the WTO Secretariat on April 22, 1999. On June 3-7, 2002, the first meeting of the Working Group on our country's accession to the WTO began. At this meeting, documents on the foreign trade regime of the Republic of Azerbaijan were discussed, as well as answers were given to questions of interest to the participating countries (USA, Australia, Canada and the EU).
The second meeting of the WTO Working Group on Azerbaijan took place on October 12-15, 2004 in Geneva, at the WTO Secretariat. It was from that moment that the negotiation process of our country's accession to the WTO began. It should be noted that all negotiations on Azerbaijan's accession to the WTO (until May 2016, there were 12 rounds in total) are mainly held at the WTO Secretariat in the city of Geneva with the participation of interested member countries of the Working Group in two formats: multilateral format - on systemic issues, agriculture and bilaterally - on access to the market of goods and services.
And after a long break, negotiations with WTO member countries restarted in September 2021. The last negotiations at the bilateral level were held in December 2019, and in 2020 they were suspended due to the pandemic. Recall that Azerbaijan is negotiating in four
main areas - on goods (tariffs for agricultural and industrial products), in the field of trade in services, revision of legislation (bringing it in line with WTO requirements) and support for agriculture (subsidizing) [3, p. 9-10].
Before the pandemic, at the suggestion of the WTO Secretariat, Azerbaijan held negotiations on the country's entry into this organization on a bilateral basis. Until then, the meeting of the Azerbaijani delegation with the WTO working group was held by the means of both bilateral negotiations with the member countries of the organization and multilateral negotiations on agriculture.
In addition, Azerbaijan has recently carried out a number of reforms, including the adoption of 12 national strategies, 12 strategic road maps, 94 state programs for economic development, changes in the regulation of trade, in the system of import customs tariffs, improved trade and logistics infrastructure. It is expected that the implementation of the roadmaps will serve as the basis for the successful accession of Azerbaijan to the WTO [6].
One of the reasons for the long entry of Azerbaijan into the WTO is that the country's economy is considered a leader among the economies of neighboring states that have joined the organization. The issues of gains and losses in Azerbaijan's accession to the WTO can be assessed from different aspects. It is not only the profitability of countries that is assessed, since the classification of these profits in various sectors is very important. Today, the subject of discussion should not be the question of joining or not joining the WTO, but how to join the WTO so that Azerbaijan can benefit from it as much as possible.
For Azerbaijan's successful participation in the WTO, it is necessary to develop those industries that are the most vulnerable, taking into account innovative progress both within the industry and outside it. In addition, regulatory legal acts should be adopted that would further increase the investment attractiveness to the country. The resolution to the above tasks will require systematic and coordinated work of all branches of government [7].
Even though Azerbaijan's economy is not comparable in scale with the economies of countries far and near, the establishment of an integrated economic space with the CIS countries plays a crucial role in the development of the economy in the long term. This interdependence is observed in several directions.
Azerbaijan occupies positions in the foreign trade turnover of some CIS countries. Therefore, in 2020, exports from Azerbaijan to the CIS countries amounted to $1.1 billion. The share of the CIS countries in the total export of Azerbaijan increased from 5.94% to 9.13%. And the share of the CIS countries in the total import of Azerbaijan amounted to 25.74% of the total volume against 24.99% for the same period last year. The proportion of Azerbaijan's foreign trade turnover with the CIS countries for the reporting period remained negative, amounting to $1.3 billion. It should be noted that today Russia remains the key sales market for oil products among the CIS countries. The main deliveries of
agricultural products are also carried out to this country [8].
Besides, machinery and equipment, vehicles, metals, timber and food products are mainly supplied from Russia to Azerbaijan while from Azerbaijan to Russia the export structure is dominated by: agricultural raw materials, food products, raw cotton, etc. Virtually 700 companies with Russian capital operate in the Azerbaijani market, 200 of them with 100% Russian capital. In general, Russian investors have funded almost $5 billion in the Azerbaijani economy, and Azerbaijani investors have already invested $1.2 billion in various sectors of the Russian economy. Before the COVID-19 pandemic, every year, around 800-900 thousand tourists arrived from Russia to Azerbaijan [9].
In 2019 the trade turnover between the countries increased and amounted to more than 3 billion US dollars, which is 18.5% higher than in 2018. As for the trade turnover with other post-Soviet countries, Russia's share in this turnover is almost 57%, followed by: Ukraine - 13.4%, Georgia - 12.5%, etc. [10].
If Azerbaijan joins the WTO, one of the first crisis consequences may be a sharp decline in the competitiveness of goods from the CIS countries on the Azerbaijani market and vice versa, as well as a decrease in mutual trade turnover. The global economy, as well as national and industry factors will influence the state of the industry [11].
It should also be noted the positive aspects of our country's accession to the WTO for Azerbaijani consumers:
- wider range of goods and services;
- increase in income. Thus, the reduction of trade barriers will contribute to the strengthening of trade, which will lead to an increase in both state and private incomes. Empirical evidence confirms that after the Uruguay Round, as a result of the transition to a new system of trade relations, world income increased from 109 to 510 billion dollars. It is also known that on the territory of the European Union, the Single Market contributed to the increase in incomes and living standards of the population [12];
- employment growth;
- increasing the efficiency of foreign economic activity.
- protection from lobbying;
- ensuring equal opportunities for all participants:
- effective dispute resolution mechanism;
- accession to the WTO implies not only a free movement of goods but also of capital, which will expand the possibilities of attracting them for the development of the economy;
- growing opportunities to influence the solution of fundamental trade issues within the framework of WTO legislation (application of quotas, anti-dumping procedures, etc.);
- principle of reducing customs duties contributes to a growth in foreign trade turnover, which is an essential positive factor for such an export-oriented industry.
- granting the more favored nation treatment to Azerbaijan in relations with all WTO members, etc.
Accession to the WTO can have a favorable effect on the economy only if clear priorities for the socioeconomic development of the country are determined. Considering the various economic and political problems on the way to joining the WTO, we can agree with the opinion of domestic scientists and experts about why Azerbaijan should join an organization that imposes such demanding conditions on it [13]?
Azerbaijan's accession to the WTO will open and fill domestic markets with inexpensive imported agricultural products, with which our goods will not be able to compete. Our agriculture will cease to exist, and this will inevitably lead to a decline in the standard of living in rural areas, as well as to the dependence of the republic on imported food. In times of low oil prices and economic instability, even a food crisis in the country is possible.
To sum up, the negative factors include:
- in connection with the decrease of import duties, revenues to the state budget may drop;
- the process of economic integration with the CIS countries may slow down;
- membership in the WTO will limit the ability of the state to regulate foreign economic activity;
- reduction in budget revenues, which can lead to the reduction of investment in the industry infrastructure;
- Azerbaijan will be limited in its ability to make independent economic decisions;
- on the world market, Azerbaijan is represented primarily by raw materials, and with entry into the WTO it will be more difficult to get rid of raw material dependence;
- many Azerbaijani companies will be uncompeti-tive, resulting in loss of job places, and an unemployment increase;
- Azerbaijan's entry into the WTO will damage the local agricultural industry, as it will open and fill domestic markets with cheap imported agricultural goods, with which our products will not be able to compete;
- financial services could also be seriously affected. Due to the opening of branches of foreign finance and insurance companies, local citizens and companies will have the chance to use more reliable by size, long-term and affordable credit resources, as well as better services. This implies that Azerbaijani banks and insurance companies will face serious sustainability issues.
Therefore, despite the positive and negative aspects, joining the WTO means Azerbaijan's accession to the existing regulations for the movement of goods and services on the world market. Speaking at a conference on the economic development of the regions, the President of the Republic of Azerbaijan noted: "An analysis of the possible positive and negative consequences of the country's accession to the WTO indicated that Azerbaijan does not intend to join the World
Trade Organization (WTO) in the short term... Each country must protect its market, and Azerbaijan is following this path. Azerbaijan will enter the WTO when agriculture and industry become export-oriented" [14].
References
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