Cablegate: Azerbaijan: Economic/ Commercial Roundup

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UNCLAS SECTION 01 OF 03 BAKU 000864

SENSITIVE
SIPDIS

COMMERCE FOR D.STARKS
EEB/CBA FOR T.GILMAN
DEPT PLEASE PASS TO USTR FOR C. MORROW AND P. BURKHEAD

E.O. 12958: N/A
TAGS: ECON EINV EIND EAIR KCOR TINT KIPR AJ TU AE
CH, BK
SUBJECT: AZERBAIJAN: ECONOMIC/ COMMERCIAL ROUNDUP

REF: A. REF A: BAKU 551
B. REF B: BAKU 799
C. REF C: BAKU 856
D. REF D: BAKU 696

BAKU 00000864 001.4 OF 003

1. SUMMARY: This cable is the second in a regular series
that will summarize economic and commercial issues in
Azerbaijan. In this issue: The GOAJ is still pushing for the
Trans-Eurasian Information Superhighway (para 2); the ILO
says child labor is shifting from cotton to "the worst"
sectors (para 3); a large trafficking ring of Bosnian Serbs
constructing prestige GOAJ projects is uncovered (para 4), as
is possible trafficking of Chinese street vendors (para 5);
Parliament's "mole" law appears officially dead (para 6); a
raising of pension ages causes protest within parliament
(para 7); Azal and Boeing agree to ask ABN-AMRO to clear on a
737 - 767 order swap (para 8); bank unfreezes Lufthansa's
700,000 Euros that were being held by a court for potential
"emotional distress" payment caused by a six-hour delay (para
9); and Embassy Baku plans to partner with Microsoft on
anti-piracy efforts (para 10) and learns how corruption in
the GOAJ affects staff: even a cut of per diems have to be
passed upstairs (para 11). End Summary.

2. DEPUTY FOREIGN MINISTER STILL CRAZY FOR INFO HIGHWAY:
Deputy Foreign Minister Mammadguliyev called the Charge
d'Affaires on October 30 to remind him of Azerbaijan's
Trans-Eurasian Information Superhighway initiative at the
United Nations. Mammadguliyev said that European support for
the UN proposal was lacking, and that the GOAJ is depending
on USG support (Ref A).

3. CHILD LABOR SHIFTING FROM COTTON TO OTHER SECTORS (Ref
B): Following the release of the Department of Labor's report
on International Child Labor, Econoff toured cotton-producing
regions of Azerbaijan and witnessed child labor during the
harvest. It's unclear if child labor is a problem or a
symptom of an awful school system. One teenager asked
Econoff, "Why should I go to school? I will just sit there
for no reason for two more years, and then I will come back
to work here. I should start working now." The ILO reports
the cotton industry has suffered a 95 percent decline (from
32,000 hectares of production in Soviet times to 1,700
hectares today), and as the sector shrinks, child labor is
moving to "the worst forms," namelydrug sales, prostitution,
and child trafficking o Dubai and Turkey.

4. BOSNIAN SERBS TRAFFICKE FOR PRESTIGE GOAJ CONSTRUCTION:
In related news, Poloff was made aware of a large trafficking
ring of Bosnian Serbs (Ref C). About 346 men were brought to
Azerbaijan by a Serbian company called SerbAz to work on
construction projects, including the Buta Palace, used by the
GOAJ for official functions, and the GOAJ-run Mingachevir
Olympic Center. There is evidence that SerbAz may be
connected to the Ministry of Youth and Sports.

5. POSSIBLE HUMAN TRAFFICKING FROM CHINA TO AZERBAIJAN: On a
trip to cotton-producing regions of Azerbaijan, Econoff met a
Chinese vendor working at a restaurant in Berda. Berda is
one of the poorer regions of Azerbaijan; its cotton industry
has collapsed along with worldwide cotton prices, and the
town is filled with IDPs from the Nagorno-Karabakh conflict.
Like many Chinese found in both large and small cities
throughout Azerbaijan, this vendor was selling small trinkets
(toy guns, picture frames, etc.) Local Peace Corps
Volunteers reported that she told a Chinese-speaking
volunteer that she wanted to go back to China as soon as she
could. She said she was promised a good job in Europe; when
she found herself selling trinkets in Berda, she was told not
to complain because she was given a "good job" in "Europe."
According to the volunteers, she said that she had been in
Azerbaijan for two years, and that she had two more years of
work left to "pay off her debt" before she could return home.
She was the only young female (appeared to be in her 20s) in

BAKU 00000864 002.4 OF 003

a restaurant whose clientele was 50-100 men and one woman,
who appeared to be in her 50s. Because she was the only
young female out after dark in Berda, the volunteers thought
it was possible she might also be engaged (or forced to
engage) in other money-generating activities.

6. PARLIAMENT'S "MOLE" LAW IS REALLY DEAD - NO, SERIOUSLY
THIS TIME: Parliament voted on October 21 to accept
President Aliyev's veto of amendments to the law on
entrepreneurship. Parliament had passed amendments on June
30 that would have required the Deputy Head (Vice President)
of every foreign company to be 1.) an Azerbaijani citizen,
and 2.) chosen jointly by the foreign company and the GOAJ
(Ref D). The threat of this law threw American companies up
in arms; they complained it amounted to planting a GOAJ
"mole" in every foreign company. If signed by President
Aliyev, this would have violated the US-AJ bilateral
investment treaty. Acceptance of the veto is good news, but
on the same day Parliament voted to remove term limits on the
Prosecutor-general, who has been an obstacle to further legal
reform.

7. PROTEST IN PARLIAMENT OVER AMENDMENTS TO PENSION LAW: The
retirement age has been raised to 60 (from 57) for women, and
63 (from 62) for men. There are different rules for mothers
of large families, parents of the disabled, the disabled, and
single fathers, but ages in these categories are also to be
reviewed. MP Hadi Rajabli, Chair of the Social Policy
Commission, said the pension age is higher in CIS and
European countries, but opposition MPs protested that life
expectancy and quality of life were also higher abroad.

8. AZAL AND BOEING AGREE TO ASK ABN-AMRO TO CLEAR ON 737/767
ORDER SWAP: Boeing Regional Sales Director Serdar Gurz says
that following months of heated discussion, Boeing and
Azerbaijan Airlines (Azal) have agreed in principle to
replace an order for two 737s for 2012 delivery with an order
for one 767 for 2013 delivery. The task now is to convince
Dutch bank ABN-AMRO, which has already made a pre-delivery
payment on the two jets, to sign off on the new deal. If
ABN-AMRO agrees, Boeing and Azal plan to ask ABN-AMRO to sign
off on a similar deal involving two 737s slated for 2014
delivery. Gurz says he will fly to Baku soon to attend a
meeting between Azal and ABN-AMRO. Azerbaijan Airlines
(Azal) put out press releases on Thursday re-trumpeting an
order that was finalized in 2008 for two 767s and two 787s.
The press release does not mention the four 737s that were in
dispute, and it's unclear to Boeing why their customer is now
re-issuing a press release for a deal that had already been
publicized over a year ago. Gurz says Azal executives
discuss politics (and specifically Turkey-Armenia
rapprochement) with him at every meeting, and he suspects
Azal's original threat to cancel the 737 orders outright may
have been politically driven.

9. MORE GOOD NEWS FOR LUFTHANSA: Country Manager Hakan Tin
reports that the International Bank of Azerbaijan has
unfrozen the 700,000 Euros it was holding in the court case
involving a six-hour delay. The matter is not yet settled,
but Lufthansa says things are moving in the right direction.
Background: a warning light on the nose gear forced a
Baku-bound Lufthansa jet to divert to Ashgabat, where weather
conditions were better. The passengers were taken off and
put on a Turkmen jet to Baku while a technician was flown in
from Frankfurt to fix the nose gear. Seven (presumably
well-connected) passengers then sued Lufthansa for 100,000
Euros each in emotional distress.

10. UPCOMING ANTI-PIRACY DRIVE WITH MICROSOFT: Embassy Baku
has begun talks with local Microsoft reps about an upcoming
anti-piracy effort. Microsoft plans to train GOAJ officials
on the detection of pirated software and send them into
Azerbaijani banks to verify the software being used is legit.
If the drive is successful, it could be repeated in other

BAKU 00000864 003.4 OF 003

sectors. Microsoft's plan is to focus on business users,
rather than home users, and to emphasize the security risks
of banks using pirated software, which can be more easily
hacked.

11. TRICKLE-UP PER DIEMS AT THE STATE COPYRIGHT AGENCY:
Embassy Baku invited two GOAJ officials to a USPTO-sponsored
IPR training in Bishkek. One participant, from the Ministry
of Communications and Information Technology (MCIT), eagerly
accepted. The other nominee, from the State Copyright
Agency, spent the bulk of Thursday morning on the phone with
Econ FSN asking about different flight options. At COB
October 29, the nominee informed Embassy Baku he "probably"
would not accept the USG's offer for a free training course
(including airfare, hotel, per diem in Bishkek, and taxi
to/from airport) because it did not include per diem for the
days in Baku when he would go to the airport. This appeared
to be a negotiating tactic; the next morning his boss called
to inform us the employee would participate after all, but
the boss needed to know exactly how much per diem the
employee would be paid. We suspect this is a case of
"trickle-up" per diem, and that the supervisor needs an exact
figure so he knows how much of a kickback to demand.
LU

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