08ASTANA341, KAZAKHSTANI LEADERSHIP DISCUSSES ECONOMIC ISSUES,

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Reference ID Created Released Classification Origin
08ASTANA341 2008-02-19 03:52 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXRO0899
PP RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHTA #0341/01 0500352
ZNY CCCCC ZZH
P 190352Z FEB 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1794
INFO RUCNCIS/CIS COLLECTIVE 0398
RUCNCLS/SCA COLLECTIVE
RUEHVEN/USMISSION USOSCE 1869

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000341 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 02/18/2018 
TAGS: ECON EPET PREL WTO KZ
SUBJECT: KAZAKHSTANI LEADERSHIP DISCUSSES ECONOMIC ISSUES, 
REGIONAL INTERGRATION, WTO ACCESSION WITH A/S BOUCHER 
 
Classified By: Ambassador John Ordway, Reasons 1.4 (b) and (d) 
 
------- 
SUMMARY 
------- 
 
1. (C) Prime Minister Masimov told Assistant Secretary 
Boucher during a February 11 meeting that he was seeking to 
implement further structural economic reforms in Kazakhstan, 
including tax reform.  The government would also be focusing 
greater attention on developing human capital.  Masimov 
stressed that Kazakhstan would not reopen the terms of 
existing subsoil use contracts, though would seek more 
favorable terms for new deals.  In a separate meeting, 
Foreign Minister Tazhin told Boucher that in addition to 
Kazakhstan's assistance program for Afghanistan, the 
Kazakhstanis would continue to seek private investment 
opportunities there.  Deputy Trade and Industry Minister 
Aitzhanova argued to Boucher that the U.S. was pressing 
Kazakhstan to agree to terms in its bilateral WTO accession 
agreement that it had not demanded of Russia.  (See septel 
for details of Tazhin's discussion of the democratic reform 
commitments Kazakhstan made at the Madrid OSCE ministerial.) 
End Summary. 
 
------------------------ 
FURTHER ECONOMIC REFORMS 
------------------------ 
 
2. (C) During separate February 11 meetings in Astana, Prime 
Minister Karim Masimov, Foreign Minister Marat Tazhin, and 
Deputy Trade and Industry Minister Zhannar Aitzhanova 
discussed with visiting Assistant Secretary of State Richard 
Boucher a range of economic issues, regional integration, and 
Kazakhstan's WTO accession.  Masimov told Boucher that he 
would take advantage of the domestic reverberations of the 
global financial crisis to implement further structural 
economic reforms.  Kazakhstan's financial sector, he 
contended, was the best in the region, but nevertheless still 
required structural changes.  Kazakhstan is getting advice 
from former World Bank President James Wolfenson and his team 
on the issue.   Masimov added that 2008 presented a unique 
opportunity for Kazakhstan to implement tax reform, which in 
part would be aimed at reducing corruption.  The government 
is considering lowering tax rates for the non-extractive 
sectors of the economy, and might increase rates on the 
extractive sectors. 
 
3. (C) Masimov explained that in the coming years, Kazakhstan 
would place even greater attention on developing its human 
capital.  Kazakhstan had a good agreement with the World Bank 
to cooperate on health, education, and other social programs. 
 The government would focus its efforts in particular on the 
critical ages for human development -- i.e., children six and 
under.  Masimov said that the government was also considering 
moving to a 12-year school program from the current 11-year 
one, but adding the year at the beginning rather than the 
end. 
 
------------ 
NEW PIPELINE 
------------ 
 
4. (C) Masimov stressed to Boucher that Kazakhstan would not 
reopen the terms of existing subsoil use contracts.  He 
contended, however, that circumstances had changed and 
Kazakhstan would seek more favorable terms for new contracts. 
  Masimov had already made this clear to ExxonMobil and 
Chevron.   Regarding energy transport, Masimov said 
Kazakhstan is pessimistic about expansion of the Caspian 
Pipeline Consortium (CPC) pipeline.  As a result, Kazakhstan 
had begun discussing with Chevron the construction of a 
Baku-Batumi pipeline.  Masimov said he had also spoken with 
Azerbaijani President Aliyev and Georgian President 
Saakashvili about the issue when he was in Tbilisi for 
Saakashvili's recent inauguration.  Masimov reminded Boucher 
that as part of Kazakhstan's efforts to diversify transport 
routes, the Kazakhstanis had recently purchased an oil 
terminal in Batumi and a controlling stake in Rompetrol.  The 
Kazakhstanis are considering buying or building a terminal in 
Constanza, he added. 
 
-------------------- 
REGIONAL COOPERATION 
-------------------- 
 
5. (C) Masimov told Boucher that President Nazarbayev had 
made a decision to provide assistance, in the form of free 
and discounted fuel oil (mazut), to Kyrgyzstan and Tajikistan 
to help them get through the difficult winter.  He stressed 
 
ASTANA 00000341  002 OF 002 
 
 
that energy and water cooperation with Kyrgyzstan, as well as 
with Tajikistan, is extremely important for Kazakhstan. 
Masimov explained that because of the manner in which 
Kyrgyzstan is operating its hydroelectric dams, too much 
water flows from Kyzgyzstan into Kazakhstan in the winter and 
not enough in the summer.  This can cause tensions. 
Kazakhstan is discussing the issue with Kyrgyzstan 
bilaterally, and is building a reservoir to try to mitigate 
the problem. 
 
----------- 
AFGHANISTAN 
----------- 
 
6. (C) Foreign Minister Tazhin told Boucher that U.S. and 
Coalition efforts in Afghanistan have been critical to the 
Central Asia
n states, particularly in mitigating the 
cross-border terrorism threat.  Boucher encouraged the 
Kazakhstanis to implement expeditiously their planned 
assistance for Afghanistan.  Tazhin admitted that the 
approximately $3 million Kazakhstan allocated for its 2008 
assistance program was modest, but stressed that this 
nevertheless sent an important signal.  Kazakhstan had 
additionally offered to provide police training, but was 
waiting for the Afghans to give a concrete response.   Tazhin 
said the Kazakhstanis would continue to explore private 
investment opportunities in Afghanistan.  Masimov told 
Boucher that he hoped to make his first visit to Afghanistan 
this year, and would bring a business delegation with him. 
 
------------- 
WTO ACCESSION 
------------- 
 
7. (C) Deputy Trade and Industry Minister -- and Kazakhstan's 
lead WTO negotiator -- Zhannar Aitzhanova told Boucher that 
Kazakhstani had finally concluded a bilateral WTO accession 
agreement with Canada.  (Note:  The agreement was 
subsequently signed on February 13.  End Note.)  Kazakhstan's 
next priorities for accession agreements would be the EU and 
Australia.  She claimed Kazakhstan and the EU had reached 
agreement on all but a handful of issues. 
 
8. (C) Aitzhanova was less optimistic about negotiations with 
the U.S.  She contended that the U.S. was asking Kazakhstan 
to agree to conditions that it was not demanding of Russia. 
This presented a major political problem, because the 
Kazakhstani parliament would find it difficult to approve an 
accession agreement with the U.S. that had worse terms than 
the agreement reached between Russia and the U.S.  She 
claimed, for example, that the U.S. side had agreed to 
Russian GMO labeling so long as it was codified in the 
country's consumer protection law, but U.S. negotiators want 
Kazakhstan to completely repeal its GMO labeling provisions. 
Similarly, she claimed that the U.S. had agreed to a 
nine-year transition period with Russia on branching rights 
for foreign financial institutions.  Kazakhstan was willing 
to agree to a six-year transition period, but the U.S. 
insists it can only offer two or three years. 
 
9. (C) Aitzhanova explained that Kazakhstan needed 
significant expert assistance to determine the full 
implications of the proposals of the U.S. and other countries 
with which it is negotiating accession agreements.  This is 
one reason why it is difficult for Kazakhstan to accelerate 
negotiations.  She praised USAID for the expert advice it has 
provided to Kazakhstan. 
 
------------- 
EXPORT DUTIES 
------------- 
 
10. (C) Boucher asked Aitzhanova about Kazakhstan's reported 
plans to levy export duties on crude oil and oil products. 
Aitzhanova explained that Kazakhstan expected to introduce 
the duties on January 1, 2009.  The aim was to increase 
budget revenues so that the government could follow through 
on planned assistance to the banking and construction sectors 
to mitigate the effects of the global financial crisis. 
Aitzhanova admitted that the export duties might raise issues 
in Kazakhstan's WTO accession negotiations, but she noted 
that other countries, including Russia, have similar duties. 
 
ORDWAY

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