WTO was established with the
objective of economic development by ensuring the free flow of trade among its
members.[1] However, some argue that
the WTO model does not guarantee gains for everyone, rather developed countries
have more opportunities to take in the wealth of the planet through this
“club”.[2] Because Azerbaijan is in the accession
process to WTO,[3]
therefore we will analyze based on our national experience what benefits and
drawbacks WTO accession implies for Azerbaijan as a developing economy and
considering them is it worth becoming a WTO member after all?
On
one hand, the WTO membership requires large-scale reforms to be implemented in
several fields of regulation, intellectual property and investments[4] which could facilitate
trade inflow, economic growth, and foreign investment.[5] Take the example of
arbitration legislation, according to the Doing Business report of the World
Bank,[6] domestic arbitration is
not permitted in Azerbaijan.[7] The decisions of the
Supreme Court on the recognition and enforcement of foreign arbitral awards
also lack uniformity and stability mainly due to conflicting norms of the Civil
Procedural Code and the Law of the Republic of Azerbaijan on International
Arbitration.[8]
Being aware of this unpredictability, foreign investors are hesitant to invest
in Azerbaijan which increases the dependence of the economy upon the sale of
oil, while other sectors remain undeveloped. Apparently, the harmonization of
national legislation to WTO provisions and establishing a more
investor-friendly climate in the country will increase Foreign Direct
Investments (“FDIs”) in the different sectors of the economy.[9] WTO regulations will also
neutralize the country-wide illegal
monopolistic conducts of oligarchs and technocrats of the government.[10] Under applied regime, the
ordinary citizens will also benefit the dropping prices, increasing quality of
the market economy.
On
the other hand, WTO membership will have detrimental macroeconomic effects for
the local business sectors of Azerbaijan.[11] The agricultural field is
a perfect example of a potential downturn.[12] Given that Azerbaijan has
a massive amount of agricultural production,[13] the sector employs 40% of
the productive workforce of the country,[14] and contributes 6% of the
state GDP,[15]
agriculture is the most important non-oil field for the country.[16] In lieu of fragile oil
prices, Azerbaijan also aims for economic diversification from oil to
agriculture.[17]
However, agricultural sector too has its own weaknesses that without government
support, it is difficult to achieve an improvement in productivity, quality and
competitiveness.[18]
Hence, Azerbaijani government regularly supports the agricultural sector by subsidies
to local producers and imposing higher tariffs on imported agricultural
products. On contrary, WTO requires Azerbaijan to cut its tariffs on
agricultural goods and permits state subsidies merely for carrying out
research, improving infrastructure and establishing irrigation systems.[19] Currently, the
Azerbaijani subsidy rate in agriculture ranges between 15-20 percent,
nevertheless WTO’s demand is to modify the range to 5-10 percent.[20] Similarly, on imports of
agriculture products grown in the country, Azerbaijan proposes higher bound
tariffs between 30-50% to be imposed contrary to WTO standards.[21] Pursuing WTO requirements
on trade liberalization and removing state intervention on the market will
leave weak local firms alone in a fiercely competitive environment with global
oligopolies within the WTO framework[22] before reaching adequate
quality, production and competitiveness.[23] Subsequently, under this
imperfect competition, foreign products would wipe out the domestic goods from
the market.[24]
Not only agriculture but also other progressive but volatile domestic sectors
are not capable of competing with their foreign
rivals.[25] Moreover, the reduced
tariff regime will cause the loss of confidence among local entrepreneurs in the
non-oil sector, while the importation of certain goods and services will accrue
to the detriment of local industries that are deprived of government safeguard.[26]
To
sum all up, Azerbaijan has two options either to participate in the
globalization process through WTO membership where the 90% of world trade is
going on or to stay away from this framework to protect its private sectors.
Azerbaijan however must take into consideration the realities of today’s world.
WTO membership will increase its trade partners and lead to diversification and
market economy through liberalization and openness. Dependence on natural
resources is not much promising since the oil and gas prices are fluctuating
and they are not forever inexhaustible. Thus, if Azerbaijan succeeds to join the organization
as a developing country status with a longer transitional period for subsidies
and tariff concessions on primarily important domestic sectors, it will lead to
considerable economic growth in the long term.
[1]
Huseynov, Rashad, Welfare and Economy-Wide Effects of Azerbaijan’s Accession to
the World Trade Organization: A Quantitative Assessment. Bonn, North
Rhine-Westphalia, Germany: Institute for Food and Resource Economics. At 8. (15
January 2015).
[2]
Guzman, A. T. (2004). Global Governance and the WTO. Harvard International Law
Journal, 45(2), 303-351.
[3]
Bayramov, V. (2010). The pros and cons of WTO membership for Azerbaijan. Azerbaijan
in the World: http://biweekly.ada.edu.az/vol_3_no_4/The_pros_and_cons_of_WTO_membership_for_Azerbaijan.htm?print=1
[4] Ismayilova,
A. (2007). The World Trade Organization and Azerbaijan: The past, present and
the future. Impact Azerbaijan (1), 9-10.
[5] Bayramov,
V. (2010). Azerbaijan’s Accession to World Trade Organization (WTO); Pros and
Cons. The Center for Economic and Social Development, page. 3-36. Bayramov, V.
(2010). The pros and cons of WTO membership for Azerbaijan. Azerbaijan in the
World: http://biweekly.ada.edu.az/vol_3_no_4/The_pros_and_cons_of_WTO_membership_for_Azerbaijan.htm?print=1
[6]
https://www.doingbusiness.org/
[7] Decision of the Baku Court of Appeals No.2-1(103)-376/2014 dated July 31, 2014
[8]
Ruslan Mirzayev, Legislation and Practice of Commercial Arbitration in
Azerbaijan, April 3, 2019, available at
http://arbitrationblog.kluwerarbitration.com/2019/04/03/legislation-and-practice-of-commercial-arbitration-in-azerbaijan/
[9]
Aliyev, K. (20 February 2014). Expected Macroeconomic Impacts of the Accession
to WTO on Azerbaijan Economy: Empirical Analysis. Gazimağusa, North Cyprus:
Munich Personal RePEc Archive
[10] Bayramov,
V. (2010). Azerbaijan’s Accession to World Trade Organization (WTO); Pros and
Cons. The Center for Economic and Social Development, page. 3-36.
[11]
Aliyev, K. (20 February 2014). Expected Macroeconomic Impacts of the Accession
to WTO on Azerbaijan Economy: Empirical Analysis. Gazimağusa, North Cyprus:
Munich Personal RePEc Archive
[12]
Farhat, F. Y. (2007). Azerbaijan and the WTO: Challenges and opportunities.
Impact Azerbaijan (1), 12-16.
[13]
Mamed-Guliyev, M. (01 December 2007). Interview: Accession to the WTO. (A.
Ismayilova, Interviewer) American Chamber of Commerce in Azerbaijan.
[14]
Farhat, F. Y. (2007). Azerbaijan and the WTO: Challenges and opportunities.
Impact Azerbaijan (1), 12-16.
[15] Huseynov,
R. (15 January 2015). Welfare and Economy-Wide Effects of Azerbaijan’s
Accession to the World Trade Organization: A Quantitative Assessment. Bonn,
North Rhine-Westphalia, Germany: Institute for Food and Resource Economics
[16]
Aliyev, K. (20 February 2014). Expected Macroeconomic Impacts of the Accession to
WTO on Azerbaijan Economy: Empirical Analysis. Gazimağusa, North Cyprus: Munich
Personal RePEc Archive.
[17]
Huseynov, R. (15 January 2015). Welfare and Economy-Wide Effects of
Azerbaijan’s Accession to the World Trade Organization: A Quantitative Assessment.
Bonn, North Rhine-Westphalia, Germany: Institute for Food and Resource
Economics
[18]
Ismayilova, A. (2007). The World Trade Organization and Azerbaijan: The past,
present and the future. Impact Azerbaijan (1), 9-10.
[19]
Mamed-Guliyev, M. (01 December 2007). Interview: Accession to the WTO. (A.
Ismayilova, Interviewer) American Chamber of Commerce in Azerbaijan.
[20]
Mamed-Guliyev, M. (01 December 2007). Interview: Accession to the WTO. (A.
Ismayilova, Interviewer) American Chamber of Commerce in Azerbaijan.
[21] Aliyev,
K. (20 February 2014). Expected Macroeconomic Impacts of the Accession to WTO
on Azerbaijan Economy: Empirical Analysis. Gazimağusa, North Cyprus: Munich
Personal RePEc Archive
[22]
Gallagher, K. P. (February 2008). Understanding developing country resistance
to the Doha Round. Review of International Political Economy, 15(1), 62-85. http://www.jstor.org/stable/25261955
[23]
Gallagher, K. P. (February 2008). Understanding developing country resistance
to the Doha Round. Review of International Political Economy, 15(1), 62-85. http://www.jstor.org/stable/25261955
[24]
Kourmanova, A. (02 July 2015). Kazakhstan and the WTO: A New Era. Center for
Strategic and International Studies:
https://www.csis.org/analysis/kazakhstan-and-wto-new-era
[25]
Ismayilova, A. (2007). The World Trade Organization and Azerbaijan: The past,
present and the future. Impact Azerbaijan (1), 9-10.
[26]
Ismayilova, A. (2007). The World Trade Organization and Azerbaijan: The past,
present and the future. Impact Azerbaijan (1), 9-10.
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