Page 41 - Azerbaijan State University of Economics

V.Bayramov: Economic diversification policy in context of Azerbaijan's accession
to the WTO

higher disposable income. An important insight from our study is that the average
consumer will be better off in case Azerbaijan joins the WTO.
At the same time, it should be noted that the Azerbaijani oil industry, which is
the main source of the income, would experience a severe setback given the
forecasted drop in exports. Recall from early chapters that the energy industry
contributes almost half to total Azerbaijani GDP and that oil accounted for 95
percent of Azerbaijani exports in 2013. Considering the share of the oil revenues in
the budget, these insights are important because they suggest harsh opposition from
the Azerbaijani oil industry when it comes to WTO accession. Additionally, this
paper makes it clear that diversifying Azerbaijani economy before joining the WTO
is a critical point.
The WTO accession and its consequences of for local business are ambiguous.
Nevertheless, local entrepreneurs will be incentivized to import certain parts of
machinery and innovative technology from abroad for their own domestic
manufacturing thanks to the better market access for foreign equipment. In addition,
WTO accession is likely to stimulate technology transfer from abroad, which could
also benefit domestic production not only of machinery and equipment but also of
agricultural products. With factors of production projected to be decreasing, the
overall costs of production will also be lower and domestic manufacturing could
become more competitive. Hence, by becoming more competitive in the local market
and improving the quality of the produced goods, they also will be incentivized to
export the products to the world market.
By way of contrast, the potential negative consequences also should be
considered, and the positive impacts on WTO accession on domestic manufacturing
must be weighed against. After accession, foreign capital and qualified products will
get access to the domestic market and their market power could potentially force
further local enterprises out of business. In the long run, direct subsidies provided by
the government to protect an infant manufacturing industry would be prohibited
under WTO regulations. As a result of WTO membership, competition with foreign
products could harm domestic production. The positive effects generated by
Azerbaijan‟s accession to the WTO at the first stage can fade out through decreased
levels of production and higher unemployment.
Nevertheless, it worth mentioning that, under the WTO regulations, new
member countries can carry out certain measures for shielding infant industries in a

41