U.S. Department of State

Annex A: Assessments of Progress in Meeting the Standards of Section 498A of the Foreign Assistance Act of 1961

AZERBAIJAN

Azerbaijan's efforts toward integration with the West have brought it into NATO's Euro-Atlantic Partnership Council and Partnership for Peace, membership in the Council of Europe, and engagement with the European Union. Significant problems remain, however. The supporters of President Ilham Aliyev and his father, the late former President Heydar Aliyev, dominate Azerbaijan's politics. Parliament has been dominated by the ruling New Azerbaijan Party since Heydar Aliyev came to power in 1993 and opposition parties make up only a small minority of its members. Elections since 1993 have not met the Organization for Security and Co-operation in Europe (OSCE) standards. The Constitution provides for an independent judiciary, but in practice judges do not function independently of the executive branch.

On October 15, 2003, Ilham Aliyev was elected President of Azerbaijan in an election that did not meet international standards. There were some positive developments, including the new Unified Election Code, a multiparty choice for voters, and technical improvements that made fraud more difficult to hide. However, these elements were overshadowed by serious deficiencies, including the lack of a level playing field, police violence, and partisan election commissions. Azerbaijani non-governmental organizations receiving foreign funding were barred from observing, but individual domestic observers were allowed. On election day, many observers witnessed serious irregularities, including inaccurate voter lists leading to the denial of eligible voters the right to vote, voter intimidation, and some ballot-box stuffing. Observers also reported serious irregularities in vote counting and tabulation. These problems lent doubt to the official final tally reporting 76.84% of the vote for Ilham Aliyev.

After the election, the authorities used excessive force (beyond U.S. norms) against violent demonstrators and others. Following the violence, authorities arrested hundreds in countrywide sweeps, many of whom had no connection to the violence. Most of these were released the following week, although authorities still hold individuals whom they allege to be connected to the violence. These detainees include the head of the Juma mosque, which has many opposition members among its congregants, but whose imam pointedly called for a non-violent response to the election.

An active and independent print media exists and press censorship was officially abolished in 1998. Nevertheless, the Government continued to restrict freedom of speech and of the press in 2003, and the press faced continued harassment during the year. Government officials sued journalists for defamation, although less often than in 2002. Journalists became victims of police violence during pre- and post-election events, sometimes incidentally as part of a larger crowd, while at other times specifically targeted. While the Government generally did not interfere with the publication of opposition newspapers during the election and media outlets routinely published critical and articles about the Government and president's family, independent and opposition newspapers only sporadically were available in regions outside of Baku. According to some Baku-based journalists, authorities in the exclave of Naxchivan actively prevented distribution of opposition newspapers. The editor of the independent newspaper Bizim Naxchivan was harassed and forced to cease publication. The Government tightly controls official radio and television, the primary source of information for most of the population.

There are several major opposition parties, which are allowed to operate although members are subject to harassment by the authorities, and hundreds were arrested in post-election countrywide sweeps, as noted above.The Government continues to hold a number of political prisoners. Estimates of the number of these prisoners vary. Efforts by the Council of Europe have resulted in the release of some prisoners and retrials for others. Presidential pardons in 2002 and 2003 resulted in the release of some of these prisoners. The Government restricted freedom of assembly, forcibly dispersed some demonstrations held without a permit, and in some cases beat or used excessive force against protesters, journalists, and detained opposition members.

Section 498A(a)(2): "make significant progress in, and is committed to the comprehensive implementation of, economic reform based on market principles, private ownership, and integration into the world economy, including implementation of the legal and policy frameworks necessary for such reform (including protection of intellectual property and respect for contracts)."

Since gaining independence, Azerbaijan has made important progress in the transition to a market economy. Outdated Soviet laws have been replaced with modern legislation to encourage foreign investment, to protect intellectual property, to permit bankruptcies, and to rationalize the Government's revenue collection policies. However, due to shortcomings in its current IPR laws and weak enforcement of existing laws, Azerbaijan is on the U.S. Special 301 "Watch List."

Azerbaijan is a member of the International Bank for Reconstruction and Development (IBRD), European Bank for Reconstruction and Development (EBRD), International Monetary Fund (IMF) and the Asian Development Bank. Azerbaijan is making modest progress in preparing for WTO membership with the assistance of a USTDA-funded WTO advisor. Azerbaijan has a bilateral trade agreement with the U.S., providing for reciprocal Normal Trade Relations, and has been determined to be compliant with the freedom of emigration provisions of the Jackson-Vanik amendment (subject to a semi-annual reporting requirement on its continued compliance with these provisions). The U.S.-Azerbaijan bilateral investment treaty (BIT) entered into force in August 2001. Azerbaijan also has an OPIC agreement.

The oil industry is Azerbaijan's financial lifeline. Twenty-two signed Production Sharing Agreements (PSAs) with over 30 international companies attest to the rapid development of Azerbaijan's energy sector, which has attracted 75-80 percent of the more than $5 billion in foreign direct investment (FDI) made through 2000. Construction is underway on key regional energy transportation projects such as the Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzerum gas pipeline. These projects will form the backbone of an East-West transportation corridor that will carry Caspian energy resources to western markets and help ensure the independence of participating states. However, the Government of Azerbaijan has had a mixed record on implementing structural reforms, especially outside the energy sector.

Economic development outside the energy sector has been incremental. In the area of land reform, the Government of Azerbaijan succeeded in implementing a land privatization program and placed 97.2 percent of agricultural lands into private hands, which helped reverse the collapse in agricultural production and contributed to growth in the agricultural sector in each of the past 5 years. The private sector now generates 99 percent of total agricultural production, a huge transformation from the previous collectivized approach to agriculture.

Privatization of industry has been less successful. Although Azerbaijan privatized more than 22,000 small state enterprises and reorganized approximately 1000 larger enterprises as stock organizations as part of a first privatization program begun in 1996, the lack of adequate preparation and a reluctance to accept worker dislocation has hampered attempts to privatize larger state enterprises. After receiving poor marks for earlier privatization of large enterprises, Azerbaijan undertook a second privatization program in August 2000 focused on privatizing larger state enterprises. Thus far, only a few of these larger enterprises have been sold to private investors, and further efforts are needed to reduce quasi-fiscal subsidies. These subsidies are provided in the form of free or seriously cut-rate energy to end-users; they are "quasi-fiscal" because there is no line-item in the state budget to give away free energy, but their policy has the same net effect in that the Government sustains the cost. Until restructuring and privatization of many large state-owned enterprises occurs, Azerbaijan will continue to be saddled with a largely obsolete and inefficient (non-energy) industrial base.

In contrast to its mixed track record on structural reform, Azerbaijan has received praise from the IMF for achieving macroeconomic stability. Under the administration of former president Heydar Aliyev, Azerbaijan adopted a conservative stance on the assumption of debt, rather than engaging in the spending sprees that often follow natural resource booms. This conservative attitude resulted in a public debt/GDP ratio of less than 22 percent in 2003 and, combined with tight monetary policies, helped the Government of Azerbaijan rein in inflation from a peak of 1,664 percent in 1994 to less than 3.0 percent in 2003. Real GDP growth in 2003 held steady at about 10.8%. The IMF has supported Azerbaijan's economic reform program since 1995. In July 2001, the Government of Azerbaijan reached agreement with the IMF on a three-year, $100 million Poverty Reduction and Growth Facility. The Government of Azerbaijan established a State Oil Fund in 1999, with the cooperation of the International Financial Institutions, to save and manage its growing energy revenues. The Fund, which began operating in January 2001, should have approximately $ 800 million in assets by the end of 2003. Expenditures from the Oil Fund are made through the state budget with the approval of parliament. The creation of the Oil Fund has had a positive impact on fiscal discipline and has contributed to better transparency and accountability of oil revenue management.

Section 498A(a)(3): "respect for internationally recognized human rights, including the rights of minorities and the rights to freedom of religion and emigration."

The Government's human rights record remains poor. As part of its application to join the Council of Europe, Azerbaijan passed several progressive acts of legislation to replace outdated Soviet legal codes. The institutions required to implement these new laws, however, are weak, and implementation has faced difficulties. The 2000 criminal code bans torture but local human rights NGOs report that authorities have tortured suspects to extract confessions. Although there were a handful of prosecutions and reprimands over the past year, perpetrators often go unpunished. Local and international human rights groups continue to visit prisons and meet regularly with political prisoners. However, one domestic human rights organization complained that the authorities restricted its access to prisons during the year.

One area where Azerbaijan had made significant progress until 2002 was in the sphere of religious freedom. Although "traditional" religious groups - Muslims, Russian Orthodox Christians and Jews - enjoy the respect and support of the Government, lower level officials harass other, "non-traditional" groups from time to time. Following President Heydar Aliyev's public commitment to religious freedom in late 1999, the Government redressed most individual cases of harassment and registered several non-traditional religious groups. The establishment of a state commission regulating religious associations in June 2001, however, required that all religious groups re-submit their registration documents. There have been considerable delays in registration and some denials. Several Protestant congregations of separate churches were denied registration when they refused to accept the state's plan for organizing themselves into a common union with a particular church at the head. Although most religious groups have continued to operate while their re-registration is pending, at least one of the churches told to organize along such lines has been closed. There have also been problems with importing religious materials, though overall progress has been made in the registration and literature importation areas in 2002 and 2003. Some Muslim groups have reported government interference in their affairs. Some Muslim communities have complained of authorities denying permission for female students and teachers to wear Muslim head coverings. A troubling development, for which government officials must share some responsibility, is continuing television broadcasts defaming several Christian religious groups.

The Government respects the right of freedom of emigration, including Jewish emigration. The remaining Armenian population in Azerbaijan is approximately 10,000-30,000, almost exclusively persons of mixed descent or mixed marriages. While official government policy is that ethnic Armenians are free to travel, low-level officials seeking bribes have harassed citizens of Armenian ethnicity who sought to obtain passports. There are approximately 800,000 Azerbaijani refugees and internally displaced persons (IDPs) from the war with Armenia. Armenians have settled in parts of Azerbaijan they occupy and Azerbaijanis are unable to return.

Section 498A(a)(4): "respect international law and obligations and adhere to the Helsinki Final Act of the Conference on Security and Cooperation in Europe and the Charter of Paris, including the obligations to refrain from the threat or use of force and to settle disputes peacefully."

Azerbaijan has reiterated its commitment to the observance of international legal obligations and OSCE commitments in the area of human rights. In November 1999, Azerbaijan joined the other OSCE states in signing the Charter for European Security, which reaffirms full adherence to all OSCE documents already in force. Despite belligerent rhetoric during the 2003 presidential campaign, it also reiterated its commitment to seek a peaceful resolution of the Nagorno-Karabakh conflict. Nonetheless, the conflict remains unresolved, and the conduct of both sides has been criticized on humanitarian grounds. The parties to the conflict observe a cease-fire in effect since May 1994, although violations by both sides are common. Through the auspices of the OSCE, Armenia and Azerbaijan continued in 2003 to exchange POWs.

Section 498A(a)(5): "cooperate in seeking peaceful resolution of ethnic and regional conflicts."

The OSCE created the Minsk Group in the spring of 1992 as the forum for a peaceful negotiated resolution to the conflict over Nagorno-Karabakh. The Government of Azerbaijan participates fully in the OSCE peace process. In 2002, the Presidents of Azerbaijan and Armenia continued to engage in a series of private meetings in an effort to resolve their differences and help bring about a resolution of the conflict. Progress slowed in 2003 as presidential elections in Azerbaijan and Armenia diverted government attention in both countries; the Presidents met for the first time in December 2003. Both Azerbaijan and Armenia have also expressed a commitment to continue working with the OSCE Minsk Group Co-Chairs to achieve a resolution of the conflict.

Section 498A(a)(6): "implement responsible security policies, including--

(A) adhering to arms control obligations derived from agreements signed by the former Soviet Union;

(B) reducing military forces and expenditures to a level consistent with legitimate defense requirements;

(C) not proliferating nuclear, biological, or chemical weapons, their delivery systems, or related technologies; and

(D) restraining conventional weapons transfers."

Azerbaijan has declared its acceptance of all of the relevant arms control obligations of the former Soviet Union. Azerbaijani actions to support this commitment include accession, as a non-nuclear-weapons state, to the Nuclear Non-Proliferation Treaty (NPT) on September 22, 1992. Azerbaijan's NPT safeguards agreement with the International Atomic Energy Agency has been in force since April 29, 1999. The Additional Protocol has been in force for Azerbaijan since November 29, 2000. Azerbaijan was one of the original signatories of the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction (CWC) and deposited its instrument of ratification of Convention on February 29, 2000. Azerbaijan has not acceded to the Convention on the Prohibition of the Development, Production and Stockpiling of Bacteriological (Biological) and Toxic Weapons and on Their Destruction (BWC). The United States considers Azerbaijan to be a party to the Intermediate and Shorter Range Nuclear Forces (INF) Treaty as a successor state to the Soviet Union. Although Azerbaijani officials have questioned that conclusion, they have taken no steps inconsistent with their obligations under the INF Treaty.

The Conventional Armed Forces in Europe (CFE) Treaty was approved by Azerbaijan's Parliament in July 1992. Until late in 1999, Azerbaijan had significant overages above its Treaty limits for ground equipment, but by a series of notifications of reduction events and decommissioning, Azerbaijan stated they had been eliminated. Azerbaijan's data since January 1, 2000 showed compliance with all limits. However, questions about the accuracy of this data have not yet been fully resolved, and Azerbaijan's compliance with other CFE obligations has been uneven. Azerbaijan participates in the CFE Joint Consultative Group, the Treaty's implementation body, which meets in Vienna. Azerbaijan has hosted on-site inspections as provided for in the Treaty and has provided data on equipment as required by the Treaty. However, since 1997 Azerbaijan, citing the exigencies of the conflict in Nagorno-Karabakh, has continued a unilateral suspension of certain notification provisions that is not permitted under the CFE Treaty. Although Azerbaijan has continued to periodically notify and carry out reduction events, it has not properly completed the reductions required by the Treaty. Since the Treaty entered into force, Azerbaijan has continuously insisted that it cannot complete required reductions -- or fulfill certain Treaty obligations -- as long as the dispute over Nagorno-Karabakh continues with Armenian troops and equipment in occupied Azerbaijani territory. Azerbaijan is engaged in discussions both in the CFE context and in the context of the Minsk process, which may help lay the basis for improved Treaty compliance.

Azerbaijan regularly submits Confidence and Security Building Measures (CSBM) annual data and has received CSBM inspections and evaluation visits in accordance with the OSCE Vienna Document 1994 and its successor Vienna Document 1999.

We have no evidence that the Government of Azerbaijan has engaged in the proliferation of nuclear, chemical, or biological weapons, their delivery systems, or related technology. Azerbaijan has made progress in establishing a system of nonproliferation export controls and has actively moved to thwart transit of controlled items to countries of concern. In September 1999, the United States and Azerbaijan signed an agreement "Concerning Cooperation in the Area of Counterproliferation of Weapons of Mass Destruction and Defense Activities." This agreement entered into force on May 7, 2003 and a related implementation agreement was signed on January 2, 2004, entering into force on that date. Azerbaijan supports the worldwide moratorium on nuclear testing, and was an original subscribing state to the November 22, 2002, International Code of Conduct Against Ballistic Missile Proliferation. Azerbaijan is not a significant exporter of conventional weapons. Azerbaijan has acceded to the Science and Technology Center in Ukraine (STCU) which will allow it to address potential proliferation of weapons knowledge from its former weapons scientists.

Section 498A(a)(7): "take constructive actions to protect the international environment, prevent significant transborder pollution, and promote sustainable use of natural resources."

Soviet era oil development, air and water pollution, and urban industrial pressure on the land have created serious environmental challenges. Deterioration and erosion of soil and salination of agricultural lands contribute to extensive soil loss. Poor air and water quality contribute to increasing public health risks. The rising level of the Caspian Sea and the prospective development of Caspian energy resources have brought serious new environmental challenges. Azerbaijan acceded to the Convention on International Trade in Endangered Species on November 23, 1998; to the Basel Convention (on transboundary movement of hazardous waste) on June 1, 2001; and to the Kyoto Protocol on September 28, 2000.

Legislation to address environmental problems and the use of natural resources, based on modern Western practice, has been enacted, but government funding remains inadequate to meet the breadth of existing problems. International consortia currently drilling for oil and gas in the Caspian Sea are following international industry-wide environmental practices.

The Government draws attention to environmental issues through its support of an annual International Environmental Congress that brings together government officials, scientists, politicians, international oil companies, and private organizations to address Caspian region development issues. Azerbaijan also participates in the Caspian Environmental Program, a five-nation project supported by UNDP and the IBRD. Under this project, Azerbaijan has established a pollution abatement research center and a database management center to help the coastal states protect the sensitive Caspian Sea environment. On November 4, 2003, Azerbaijan signed a five-party Framework Convention for the Protection of the Marine Environment of the Caspian Sea with Iran, Turkmenistan, Russia, and Kazakhstan. In November 2001 the Caspian Environment Program sponsored a series of workshops on oil spill contingency planning which many hope will be a building block for Azerbaijan in a regional contingency plan for the coastal states.

In October 2001 the Government combined five agencies into a new Ministry of Ecology and National Resources, which is responsible for implementing the Government's ecology policy. In December 2000 Azerbaijan joined co-founders Georgia and Armenia in a Regional Environmental Center for the Caucasus. The United States and the European Union are supporting and co-financing this independent, non-profit, and non-political organization, the mission of which is to strengthen civil society and support sustainable development by promoting public awareness and participation in regional environmental decision-making. In November of 2001, the Ministry of Ecology advised that Azerbaijan had completed a national sustainable development plan. Azerbaijan is participating in a three-country USAID project on management of the Kura/Aras River, a river basin that encompasses Georgia, Azerbaijan and Armenia.

Section 498A(a)(8): "deny support for acts of international terrorism."

Azerbaijan is a staunch partner in the U.S.-led global war on terrorism. It is party to eight of the twelve major international anti-terrorism conventions and protocols and has cooperated with the U.S. and other countries on anti-terrorism efforts.

U.S.-Azerbaijan counterterrorism cooperation predates the September 11 attacks. Azerbaijan provided evidence to U.S. authorities that contributed directly to the conviction of the 1998 East Africa Embassy bombers, and cooperates with the U.S. Embassy in Baku against terrorist threats to the mission. In the wake of the September 11 attacks, the Government of Azerbaijan expressed unqualified support for the U.S. and offered "whatever means necessary" to the U.S.-led antiterrorism coalition. To date, Azerbaijan has granted blanket overflight clearance, offered the use of bases, and engaged in information sharing and law enforcement cooperation. In November 2002 a platoon of Azerbaijani soldiers was deployed to the international peacekeeping force in Afghanistan, and in August 2003 a company of Azerbaijani soldiers was deployed to Iraq.

Azerbaijan has taken steps to combat terrorist financing, making a concerted effort to identify and shut down groups engaged in terrorist-related funding. Azerbaijan closed three Islamic organizations that were suspected of supporting terrorist groups. It has taken steps to prevent the use of Azerbaijani territory by Chechen militants and those seeking to aid them. Azerbaijan has also detained several persons crossing the Iran-Azerbaijan border illegally. Azerbaijan's Department of Aviation Security increased security at Baku's Bina Airport and has implemented International Civil Aviation Organization (ICAO) recommendations on aviation security. Azerbaijan has turned over 30 foreign citizens with suspected ties to terrorists, including eight to Egypt and three to Saudi Arabia. The Government of Azerbaijan does not grant sanctuary from prosecution to individuals or groups that have committed actions of international terrorism or otherwise support international terrorism.

Section 498A(a)(9): "accept responsibility for paying an equitable portion of the indebtedness to United States firms incurred by the former Soviet Union."

In October 1991, shortly before the Soviet Union dissolved, Russia and nine other Soviet republics signed a Memorandum of Understanding declaring themselves jointly and severally liable for the foreign debts of the Soviet Union. In December 1991, Russia and seven other republics signed an agreement that assigned to each of the newly independent states a share of all the external assets and foreign debt of the former Soviet Union (USSR). Beginning in 1992, Russia sought to replace the joint and several liability principles by seeking full liability for the foreign debt of the USSR in return for all the external assets of the USSR. In September 1993 Azerbaijan signed a "double zero option" agreement with Russia under which Russia agreed to pay Azerbaijan's share of the foreign debt of the USSR in return for Azerbaijan's share of the external assets of the USSR.

Please see section 498A(a)(9) of the Russia assessment regarding indebtedness to the United States incurred by the former Soviet Union.

Section 498A(a)(10): "cooperate with the United States Government in uncovering all evidence regarding Americans listed as prisoners-of-war, or otherwise missing during American operations, who were detained in the former Soviet Union during the Cold War."

The U.S. effort to uncover evidence of American POWs and MIAs in the former Soviet Union is being conducted through the U.S.-Russian Joint Commission on POWs/MIAs, which was established in March 1992. The Commission met with Azerbaijani officials in June 1996, and the Azerbaijani Government pledged its cooperation with the Commission's efforts.

Section 498A(a)(11): "terminate support for the communist regime in Cuba, including removal of troops, closing of military and intelligence facilities, including the military and intelligence facilities at Lourdes and Cienfuegos, and ceasing trade subsidies and economic, nuclear, and other assistance."

We do not have information from which to conclude that the Government of Azerbaijan is providing military, intelligence, economic, nuclear, or other assistance to the Government of Cuba.

AZERBAIJAN

No, the President has not made such a determination at this time. While there have been serious shortcomings in human rights observance, we do not believe that the Government of Azerbaijan is engaged in a pattern of gross violations of human rights or of international law. Nonetheless, we will work to better address existing problems not only through our diplomatic efforts but also through our assistance programs.

Section 498A(b)(2): Has the President determined that the Government of Azerbaijan "has failed to take constructive actions to facilitate the effective implementation of applicable arms control obligations derived from agreements signed by the former Soviet Union"?

No. The President has not made such a determination at this time.

Section 498A(b)(3): Has the President determined that, after October 24, 1992, the Government of Azerbaijan "knowingly transferred to another country --

(A) missiles or missile technology inconsistent with the guidelines and parameters of the Missile Technology Control Regime; or

(B) any material, equipment, or technology that would contribute significantly to the ability of such country to manufacture any weapon of mass destruction (including nuclear, chemical, and biological weapons) if the President determine[d] that the material, equipment, or technology was to be used by such country in the manufacture of such weapon"?

No. The President has not made such a determination at this time.

Section 498A(b)(4): Is the Government of Azerbaijan "prohibited from receiving such assistance by section 101 or 102 of the Arms Export Control Act or sections 306(a)(1) and 307 of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991"?

No.

Section 498A(b)(5): Has the President determined and certified to the appropriate congressional committees that the Government of Azerbaijan "is providing assistance for, or engaging in non-market-based trade (as defined in section 498B(k)(3)) with the Cuban Government? If so, has the President taken action to withhold assistance from Azerbaijan under the Foreign Assistance Act within 30 days of such a determination, or has Congress enacted legislation disapproving the determination within that 30-day period?"

No. The President has not determined that the Government of Azerbaijan is providing military and intelligence, economic, nuclear, or other assistance to or engaging in any non-market-based trade with, the Government of Cuba.