European Parliament

EUROPEAN PARLIAMENT

DIRECTORATE-GENERAL FOR EXTERNAL POLICIES Policy Division AC/ir

Luxembourg, 19 August 2004

NOTE

ON THE POLITICAL AND ECONOMIC SITUATION

IN AZERBAIJAN AND ITS RELATIONS

WITH THE EUROPEAN UNION

This note has been drawn up for Members of the European Parliament. Any opinions it may contain are those of the author and do not necessarily reflect the position of the European Parliament.

Sources: Economist Intelligence Unit (EIU) European Commission Eurostat Oxford Analytica

NT\543520EN.doc 1 PE 349.244 CONTENTS

Page

I. EXECUTIVE SUMMARY...... 3

II. POLITICAL SITUATION ...... 4

III. ECONOMIC SITUATION ...... 10

IV. RELATIONS WITH THE EUROPEAN UNION ...... 14

ANNEXES

For further information, please contact Mr Anthony Comfort, European Parliament, DG 3, Luxembourg, Policy Unit. Tel. (352) 4300 22167, e-mail: [email protected]

NT\543520EN.doc 2 PE 349.244

I. EXECUTIVE SUMMARY

The ruling New Azerbaijan Party (NAP) continues to hold political power. The opposition remains divided and lacks both a charismatic leader and a concrete policy agenda. The poverty of displaced people and the widening disparities in living conditions face Azeris with a choice between social explosion and passivity. It seems that the latter is prevailing but the current trials of opposition leaders may provide a focus for dissent.

The dispute with Armenia over Nagorno-Karabakh remains unresolved owing to hostility to a compromise deal in both countries, but there are at last signs of progress. The EU may play an important role in the resolution of this dispute. However, several Azeri opposition leaders seek a resumption of hostilities.

Internationally, the government is consolidating good relations with Washington, Ankara and Brussels and there are signs of a gradual rapprochement with Moscow.

The economy is expected to continue to grow rapidly, owing to external investment in the energy sector and rising oil exports. Real GDP growth is forecast to be 10% in 2004, owing to a surge in oil prices, before rising to 12% in 2005 as oil output increases substantially. Prudent monetary policy will ensure nominal currency stability against the US dollar. The current-account deficit is forecast to increase rapidly in 2004, owing to substantial imports of capital goods and services for the hydrocarbons sector, but will decrease in 2005 as oil production is increased and Azerbaijan benefits from high oil prices. Foreign direct investment (FDI) will cover the external deficit.

Azerbaijan holds a strategic location between the EU and Central Asia. Since the 1 July 1999, a Partnership and Cooperation Agreement with the EU, concluded for an initial period of 10 years, has entered into force. It covers cooperation in all non-military areas. In the coming years, the main issues will be the implementation of the PCA, promotion of trade, investment and conflict resolution in Nagorno-Karabakh.

NT\543520EN.doc 3 PE 349.244 II. POLITICAL SITUATION

1. Introduction

Azerbaijan is situated in the Caucasus, on the western shore of the Caspian Sea. It borders Russia and Georgia in the north, Armenia in the east, and Iran and Turkey in the south and also has an 800-km shoreline along the Caspian Sea. It covers an area of 86 600 km²(1), almost the size of Austria, but 20% of the country's territory is currently occupied by Armenian armed forces. It has a population of 8m. The population is fairly homogeneous: 90% Azeri, 3.4% Daghestani, 2.5% Russian and 2.3% Armenian. The official language is Azeri, and the national currency is the manat. The majority of the population (87%) is Muslim (Shiite) and speaks Azeri, a Turkic language. The capital is Baku, on the Caspian Sea.

The word Azerbaijan may have been formed from ‘Atropaten’, after Atropat, a satrap of Alexander of Macedon in 328 BC. Conquered by the Arabs in 642, it was then subjected to Turkish, Mongol and Persian influences. From the 18th century it attracted the interest of Russia, the consequence of this being lengthy wars with Turkey and Persia. Eventually, the Treaties of Gulistan (1813) and Turkmanchai (1828) gave Russia several khanates, notably those of Shirvan and Baku, and thus access to the Caspian Sea.

After the fall of tsarism, plans for a Caucasian federation of Azerbaijan, Georgia and Armenia failed owing to religious and racial hatred. An independent democratic Republic of Azerbaijan was proclaimed on 28 May 1918 but was incorporated in 1922 into the Transcaucasian Soviet Federative Republic, before eventually becoming a full union republic of the former Soviet Union (1936). The Iranian part of Azerbaijan was proclaimed an independent republic in November 1945 and placed under Iranian control from 1946. Soviet Azerbaijan did not gain its independence until 30 August 1991,2 when it became the Republic of Azerbaijan ('Azerbaycan Respublikasi').

The issue of Nagorno-Karabakh still dominates politics in Azerbaijan. The first steps towards a compromise, which seemed to be taking shape in the autumn of 1999, were foiled by a crisis in Armenia and opposition in Baku.

2. Domestic issues

Introduction

Ilham Aliyev, the son of the former president Heydar Aliyev, who ruled Azerbaijan for an almost unbroken period from 1969 until his death last year, succeeded his father in the October 2003 presidential election. Mr Aliyev is taking steps to consolidate his authority, and has already dismissed two government ministers, in addition to continuing to crack down on the opposition. The opposition parties have largely discredited themselves in the eyes of the public, not only because of their failure to unite, but also because their organisation of demonstrations in the wake of the election resulted in violence, leaving many Azerbaijanis afraid of a return to the instability of the early 1990s. Opposition leaders are currently on trial for their alleged role in the post-electoral disturbances. But ending of repression might lead to further support in Azerbaijan for a resumption of hostilities with Armenia.

1 Nagorno-Karabakh covers 4 400 km² and noncontiguous Nakhichevan 5 500 km². 2 See Annex I.

NT\543520EN.doc 4 PE 349.244 Mr Aliyev has dismissed the unpopular minister of communications and the hardline foreign minister. Mr Aliyev is probably choosing a path of cautious reform instead of making sweeping changes that could lead to political instability. Economic circumstances currently play in Mr Aliyev's favour, since growing oil wealth gives him the resources with which to stave off public discontent and to ensure the support of the ruling elites. Possibly, his aim is to gain support by making the government responsive to popular concerns. There is no immediate prospect of a downturn in the economy, which would constrain Mr Aliyev's ability to satisfy both the population and his political base.

Nevertheless, a potential challenger could emerge, despite the fact that the ruling elite has rallied around Mr Aliyev. There seem to be three groups that are jockeying for the president's favour. The extent to which these elites can rely on support from the security services and the Ministry of the Interior is unclear, although differing alliances are likely to have been forged between branches of the security services and these groups, thereby weakening their overall influence. Mr Aliyev may be tempted to cede considerable autonomy to members of the elite, allowing them to enrich themselves and in this way curbing their political ambitions while retaining their support. It seems likely that they will not challenge his authority for the present.

a) President

The president is elected by universal suffrage for a five-year term.

Following the entry of Soviet troops into Baku in January 1990 and after a bloody conflict in the capital, Mr Heydar Aliyev, a former member of the Politburo, left the Communist Party and supported independence for Azerbaijan, which was proclaimed on 30 August 1991 after the Moscow putsch. In June 1993 he replaced the first Azeri president, Mr Abulfaz Elchibey, whose popularity had declined owing to the conflict in Karabakh.

In October 2003 Mr Ilham Aliyev was elected following the death of his father. The results were however disputed by the opposition and serious violence has ensued. b) Government

The president appoints the cabinet, which must be approved by the National Assembly. However, the real executive power lies with the president. In practice, ministers are directly subordinate to the president. Mr Artur Rasizade has been the head of government since 26 November 1996. c) Parliament

On 5 November 2000, the first legislative elections since independence were held in Azerbaijan1. Since respect for democratic principles was a precondition for any investment by western countries, the election of a parliament and the adoption of a constitution was essential. As provided in the constitution adopted on 12 November 19952, a single-chamber parliament3 was established, and its 125 members are elected for a term of five years4 in direct legislative

1 See Annex III. 2 Entered into force on 27 November 1995. 3 The ‘Milli Majlis’. 4 Which coincides with the president’s term of office.

NT\543520EN.doc 5 PE 349.244 elections, under a mixed electoral system1. During the November 2000 elections, voting took place in only 99 constituencies, as the Khankandi area in the constituency of Nagorno-Karabakh was excluded. The 25 proportional seats are distributed only amongst parties that have obtained 6% of the valid votes. The next parliamentary elections will take place in November 2005. d) Political parties2

In the parliamentary elections of 2000 President Aliyev’s governing party (NAP) won more than 62% of the vote, compared with 11% for the Popular Front and 5% for Musavat. The governing party3 is currently represented by 79 MPs but the elections were marred by large-scale fraud. Demonstrations after the first round of the legislative elections were repressed by the police.

According to observers from the OSCE (of which Azerbaijan has been a member since January 1992), the elections were 'marked by numerous examples of serious irregularities'. The OSCE report noted that opposition parties had not been registered, that their supporters had come under verbal and physical pressure and that their appeals for legal remedy had been unsuccessful.

Established in 1994, the Democratic Congress coordinates the activities of around a dozen opposition parties4, but it is seriously divided. Azeri parties are not, in fact, groups of individuals sharing common political values but rather structures built around a charismatic personality, often having their origins in clans.5 The opposition’s inability to present itself as an alternative to the government may explain its limited popular support. The west, Russia and neighbouring countries such as Iran and Turkey have also considered the Aliyevs as offering greater stability.

Social protests outside the capital and not organised by the opposition have become common. Most recently a demonstration in the province of Nakhichevan on 18 May 2004 was brutally repressed. No major public rally has been permitted since the accession to power of president Ilham Aliyev. e) Legal system

Although the new constitution, adopted in 1995, establishes a separation of powers between the executive and the judiciary, in reality this division is almost non-existent. According to observers, the rule of law is undermined by inexperience and corruption: judges are subject to political pressure and the presumption of innocence is not specifically provided for in the penal code. The Constitutional Court, provided for in Article 130 of the constitution, consists of seven judges, appointed by the parliament at the suggestion of the president.

In a referendum in August 2002, 96% of Azeris (according to official figures) voted in favour of changes to the constitution advocated by President Aliyev. This consultation of the public, subject to condemnation by the opposition for widespread fraud, related to the issue of the status of the prime minister, on whom the President wished to bestow a greater role by allowing the prime minister to take over in the interim, should there be no president-in-office. As was feared by many at the time, this change facilitated the transfert of power to the President's son. The opposition parties, political observers and the Council of Europe criticised these amendments,

1 25 seats are allocated proportionally from parties’ national lists, for a single countrywide constituency, and 100 seats are allotted to candidates in single-member constituencies. 2 See Annex III. 3 New Azerbaijan Party (Yeni Azerbaycan). 4 Of around 40 existing parties. 5 Only three parties are fairly represented at national level.

NT\543520EN.doc 6 PE 349.244 which increase the concentration of power in the hands of the president and the supremacy of the presidential party (NAP). f) Human rights

Azerbaijan was expected to gain Council of Europe membership earlier but negotiations were delayed owing to the large-scale fraud noted by international observers during the last legislative elections. Nevertheless Azerbaijan did become the 43rd member state of the Council of Europe in January 2001. It currently has six seats in the Council's Parliamentary Assembly.

Despite this, flagrant violations of human rights have continued: citizens are arbitrarily imprisoned and tortured; the police conduct searches and seizures without arrest warrants; the right of association and assembly is restricted; local authorities restrict the registration of NGOs which support the opposition and defend human rights. Seven opposition activists are currently on trial for their alleged role in post-election violence.

State authorities control television and radio in Azerbaijan and journalists themselves may be prosecuted by the authorities. The Secretary General of the Council of Europe, Walter Schwimmer, expressed his concern in 2001 about the worsening situation of the media in Azerbaijan where journalists had been placed in detention for criticising the President and the publication of several newspapers had been suspended by the authorities. Mr Schwimmer called on the authorities to respect the commitments undertaken when Azerbaijan joined the Council of Europe and to guarantee the media's freedom of expression and independence. In February 2003, Freimut Duve, the OSCE Representative on Freedom of the Media, expressed his concern at the frequent use of defamation suits against the independent Azeri press.

On 24 January 2002, the Parliamentary Assembly of the Council of Europe adopted a resolution on ‘Political Prisoners in Azerbaijan.’ The resolution specifically asked the authorities in Baku to release the former interior minister Iksender Hamidov, former defence minister Rahim Gaziev and Alikram Gumbatov, who were considered political prisoners. In its 2002 report, covering January – December 2001, Amnesty International also condemned the incidences of maltreatment or even torture in the Azeri prisons. Some political prisoners were released in March 2002.

On 18 June 2002, the Milli Majlis (parliament) passed a law on the ‘implementation of human rights and freedoms’. This law was criticised by opposition leaders and human rights organisations, because it provides for severe restrictions on the right of assembly and demonstration and other basic rights as soon as national security or public order is threatened. Currently the leader of one opposition parties is in prison (Mr Iqbal Agazade of the Umd Party) and 'disciplinary action' has been launched against Mr Ali Kerimli of the Popular Front (Reform Wing). Seven other arrested opposition leaders are on trial and kept in solitary confinement with no water or electricity in their cells.

3. Foreign policy

The Nagorno-Karabakh question between Azerbaijan and Armenia and the share of the Caspian Sea resources between the five littoral states (Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan) are the most important transnational issues for Baku. a) Armenia

NT\543520EN.doc 7 PE 349.244 The conflict between Armenia and Azerbaijan is ancient. In 1918 there was already a dispute between the two countries for control over the "mountainous" portion of Karabakh. Since 1988 both countries have claimed a historic right to Nagorno-Karabakh - a mainly Armenian- populated enclave on Azeri territory. This region had been incorporated into Azerbaijan in 1924 on Stalin's orders. In compensation for the loss of Nagorno-Karabakh, the Bolshevik government created the noncontiguous Azeri territory of Nakhichevan (1924). In 1988, its regional council requested that the region be transferred to Armenia, but Moscow refused, and this led to a deterioration in relations between Armenians and Azeris. Russian troops intervened to quell unrest in the industrial town of Sumgait. Thousands of refugees were forced to leave their country of origin. On 26 November 1991, the Azeri parliament removed autonomous status from Nagorno-Karabakh and war broke out between Baku and Yerevan.

After the end of the hostilities between Armenia and Azerbaijan (May 1994), Armenia kept control of the Lachin corridor which separates Nagorno-Karabakh from Armenia as well as the land bordering Nagorno-Karabakh, altogether amounting to nearly 20% of Azeri territory. Nagorno-Karabakh is still recognised internationally as being part of Azerbaijan, which might be prepared to accept the independence of Karabakh on condition that it maintain formal links with it. Some moderate Armenians would prefer a prosperous border region so as to be able to have easy access to the Caspian Sea and are proposing a political compromise.

War claimed 20 000 lives and resulted in more than one million refugees and internally displaced persons (IDPs) by the end of 19981. After years of conflict, the two sides have recently made efforts to move closer together. In 1998, the OSCE's so-called Minsk Group (composed by France, Russia and the USA) proposed a 'common' statute for a geographical area that was still ill-defined, but that project has not yet borne fruit. There were at least 11 meetings in 2000 between the Armenian President (Robert Kocharian) and the Azeri President (Heydar Aliyev) but Armenian-Azeri negotiations in Geneva in 2001, were unsuccessful.

The two sides blame each other for this failure. Despite bellicose rhetoric against Armenia, it is unlikely that the current impasse will result in military conflict, because Baku is unwilling to risk pitting its weak and poorly equipped army against Armenia's, which has benefited from Russian support. Furthermore, open conflict could endanger oil projects such as the Baku-Tbilisi-Ceyhan pipeline, encouraged by Washington, which is gaining ever greater importance.

The Azeris show signs of weariness with regard to the OSCE and, in particular, the Minsk Group in the face of the continuing status quo in Karabakh almost 10 years after the ceasefire. Displaced people are also beginning to lose any hope of recovering their houses and possessions. Talks between parliamentary representatives in December 2003 held in Scotland re-established direct contacts with Armenia but provided scant grounds for optimism. However, President Kocharian of Armenia had a cordial discussion with President Ilham Aliyev at the European Economic Summit in Warsaw in April 2004 and this has been followed by detailed discussions of possible advances between foreign ministers.

b) Russia

1 According to UNHCR reports.

NT\543520EN.doc 8 PE 349.244 Relations with Russia have sometimes been difficult1. This is largely due to evidence that Moscow supported Nagorno-Karabakh's secession in an effort to maintain Russian military influence in the region. Since 2002, there has been a clear rapprochement between Moscow and Baku. This good understanding is due to the need for mutual support. Azerbaijan is aware that Russia could play a pivotal role in solving the Nagorno-Karabakh crisis. As for Russia, it has not forgotten that Chechen terrorists have taken refuge in Azerbaijan and the oil stakes are considerable. This policy of rapprochement has led to: - agreements on transport, communications, energy, customs, trade, science and education; - an agreement on sharing Caspian Sea resources - extradition agreements for Russian citizens (especially Chechens) in Azerbaijan and Azeris in Russia; - the holding of joint Russian-Azeri military exercises on the Caspian Sea; - use of the Gabala radar station for a ten-year period. c) Iran

Ties with Iran will continue to be strained because of disagreement over the legal status of the Caspian Sea and Iranian concerns that Azerbaijan will help to fuel calls for separatism among its own large Azeri population (16 million - or twice the size of the population of Azerbaijan). Furthermore, the relations between the two countries have recently deteriorated due to Azerbaijan's improved relations with Israel2. Iran is a major trading partner for non-oil products, so the economic consequences of this political discord could be serious. President Aliyev visited Tehran in May 2002, after which Iran and Azerbaijan expressed intentions to observe each other's territorial integrity, to respect inviolability of borders and the principle of non- interference in each other’s domestic policy. d) Turkey

Turkey was the first country to recognise the independence of Azerbaijan, a Turkic-speaking country. Ankara has also supported Baku in the Nagorno-Karabakh conflict with Yerevan. Azerbaijan and Turkey have concluded a bilateral military assistance agreement. Proposals to open the border between Armenia and Turkey have apparently recently foundered because of opposition from Azerbaijan. e) USA

After 1992, the USA reduced military and economic aid to Baku in order to facilitate a peace agreement between Azerbaijan and Armenia. But since 2001, Azerbaijan’s relations with the USA have strengthened. Azerbaijan provided assistance in the campaign in Afghanistan, including the offer of air corridors. In January 2002, President Bush repealed Section 907 of the Freedom Support Act, which restricted US government assistance to Baku, therefore enabling it to receive USD 50 million in aid. An agreement on military cooperation was also signed in March 2002 relating to contact between the armies, the development of Azerbaijani naval forces and the modernisation of air control systems. Under this agreement, Baku will receive USD 4.4 million from Washington.

The United States welcomes the building of the Baku-Tbilisi-Ceyhan pipeline, essential to its energy supply projects in Transcaucasia and Central Asia (see below). As far as Iraq is

1 Azerbaijan is a member of GUAM (Georgia, Ukraine, Azerbaijan, Moldova), a group of countries that are critical of Moscow’s policy regarding the CIS. 2 As a moderate Muslim country with oil resources, Azerbaijan is a geostrategic partner of Israel.

NT\543520EN.doc 9 PE 349.244 concerned, Baku's support for Washington is tempered by fear of an outburst of Islamic radicalism in Azerbaijan. Azerbaijan is of course a major beneficiary of high oil prices.

II. ECONOMIC SITUATION1

1) Introduction

Azerbaijan is industrially less developed than either Armenia or Georgia, the other Transcaucasian states. Its state of development is similar to that the Central Asian states in that it has a mainly Muslim population, high structural unemployment and a low standard of living. Azerbaijan’s main resources are oil, cotton, and natural gas.

Production from the Caspian oil and gas fields declined for several years, but has been recovering in the last few years. This is the consequence of the negotiation of 17 production- sharing arrangements (PSAs) with foreign firms, which have so far committed more than USD 35 billion to oil field development. Such investment should generate the funds needed to spur future industrial development. Oil production under the first of these PSAs, with the Azerbaijan International Operating Company (AIOC), began already in1997.

The country is strategically important, as it is the key to Caspian oil exports through non-Russian networks, as well as a potential export route for other Caspian oil producers like Kazakhstan and Turkmenistan. It is on these grounds that US financial and other support has been accorded. Washington has provided strong encouragement for the building of the 1760 km long Baku- Tbilisi-Ceyhan (BTC) pipeline, which should link the Caspian to the Mediterranean via the territory of the United States’ three allies in the region: Azerbaijan, Georgia and Turkey, whilst avoiding Russia (unstable Chechnya) and Armenia (Moscow’s only Transcaucasian ally). This pipeline should be finished soon and will allow 500 000 barrels of oil to be transported each day. The BTC will also reduce US dependence on oil from the Gulf.

Azerbaijan has shared the problems of ex-Soviet republics in making the transition from a command to a market economy. However, its considerable energy resources brighten its long- term prospects. Baku has only recently begun making progress on economic reform.

A major short-term obstacle to economic progress, and especially to attracting foreign investment, is the continuing bitterness over Nagorno-Karabakh. Trade with Russia and other former Soviet republics is declining in importance, while it is inceasing with the European Union, the United States, Turkey, Iran and the United Arab Emirates (UAE). It will be difficult to maintain the competitiveness of non-oil exports in world markets.

The recent trend of economic growth should continue quite strongly, staging a marked recovery after the average annual contraction of 9.6% of GDP during the 1990s, but the economy will remain extremely vulnerable to external shocks emanating from the oil cycle, given that the energy sector (oil and gas) accounts for more than 30% of GDP.

With the non-oil economy still underdeveloped2 and starved of state and private capital, investment and growth rates will depend heavily upon the development of new gas fields and

1 See Annex V. 2 Especially agriculture, which has lost its traditional markets (including Russia), resulting in a rural exodus on a considerable scale.

NT\543520EN.doc 10 PE 349.244 export routes. A privatisation law has been adopted and a second privatisation programme launched, but the concerns of potential investors have not been adequately addressed.

The economy is also hampered by widespread corrupt practices at all levels of the administration.

2) The Caspian Sea issue

Apart from being a navigable waterway, the Caspian Sea possesses important natural resources (oil, natural gas and fish). Since 1988, all the countries around the Caspian Sea coast have supported the notion of the inviolability of the Caspian Sea based on the 1921 and 1940 agreements between the Soviet Union and Iran, under which the sea itself and the seabed are indivisible and foreign companies may not operate without the consent of all the countries in the region.

But the issue now is how to split the resources of the Caspian Sea. Russia, Kazakhstan and Azerbaijan want to divide up only the seabed (the sea itself being used in common) according to a dividing line that would take into account the length of the shoreline of each country on the Caspian Sea. It seems that Turkmenistan would agree to go along with this suggestion, but with some adjustments to the dividing line. Iran, on the other hand, has an entirely different view; it proposes that the Caspian Sea be divided into five, so that each country with a shoreline would be entitled to 20% of this internal sea.

Local scientists consider the Apsheron peninsula to be the world's ecologically most highly degraded region because of serious atmospheric, water and soil pollution as a result of the use of pesticides and exfoliates in the production of cotton1. Less than half of Azerbaijan's towns have technical facilities for treating drinking water. Also, the expansion of chemical companies has continued without due regard for the relevant environmental standards. During the country's current period of transition towards a market economy, there has not been much change in the environmental situation, but there is much to gain in the long term.

The factors responsible for pollution include obsolete equipment, in particular in the oil industry around the Apsheron peninsula, which contributes to destruction of the natural environment there. At present Azerbaijan does not have the funds to improve the situation. Moreover, large areas in the west of the country have been devastated by the war with Armenia. Atmospheric pollution is particularly bad in the large towns and cities such as Baku and Sumgait.

During the last few years, the level of the Caspian Sea has risen greatly and the whole of Azerbaijan's cost (in the east of the country) has been flooded, with the sea reaching as far as 25 to 35 km inland in some places. All inhabitants and economic installations in these areas have therefore had to be moved elsewhere.

3. Economic forecast

Economic policy will focus on maintaining macroeconomic stability, and the implementation of deeper and more painful structural reforms will be subject to frequent delays. The government is expected to run a tight fiscal stance, accompanied by a looser monetary stance. Rapidly rising

1 The policy of the former Soviet Union was aimed at intensive exploitation of natural resources. All sectors of the economy and industry thus developed at the expense of the environment.

NT\543520EN.doc 11 PE 349.244 oil-related revenue and a booming economy, owing to massive investment in the hydrocarbons sector, mean that keeping the budget close to balance will be relatively easy. A looser monetary policy is needed to provide liquidity to non-oil sectors and to prevent the potential over- appreciation of the exchange rate.

The government has not implemented several of its key commitments to structural reform under the IMF's poverty reduction and growth facility (PRGF). Structural reforms carry political costs for the government, both in terms of their threat to elite interests and because of potential job losses in the overstaffed state sector, which could lead to social unrest. With a surge in export revenue expected in 2005, the authorities do not need to rely on financing from the IMF to fund economic development. There may be some measures taken to increase competition in the telecommunications sector, following the dismissal of the minister of communications, but reform of the banking sector is likely to proceed at a slow pace. Similarly, the government's commitment to introduce reform of the energy sector will be subject to periodic delays, jeopardising the development of a viable non-oil industrial sector. a) Economic growth

High levels of FDI by global oil companies have contributed to rapid economic growth over the past two years. One of the main beneficiaries of investment has been the construction sector, owing to the need to build pipelines and other hydrocarbons facilities. Real GDP growth reached 10.1% in the first four months of 2004, compared with 9.1% in the year-earlier period. Capital investment and construction activity linked to continued oil- and gasfield development will be the main drivers of growth over the forecast period. We expect economic growth of 10% year on year in 2004, before growth accelerates to 14% in 2005, when oil production will almost double b) Inflation

Ever-increasing levels of FDI into the country have started to have an impact on consumer price inflation. Although most oil export revenue is kept in the overseas oil fund—part of the fund's assets are being used to finance Azerbaijan’s development, in addition to pipeline construction— this measure has been insufficient to curb the growth of the money supply in recent months. Consumer price inflation averaged a low 2.1% year on year in 2003, but was higher in the final quarter of the year, at 2.8%. By April 2004 inflation had reached 6.2% year on year, mainly owing to a surge in foodstuffs prices, as stocks ran down. We expect inflation to fall during the course of the year, mainly owing to seasonal declines in food prices. Foodstuffs comprise the bulk of the average consumption basket, and lower prices for these goods have an immediate impact on inflation. We therefore anticipate annual average consumer price inflation of 4.4% in 2004. Annual inflation will remain broadly static in 2005, at about 4.7%, with the main inflationary pressure stemming from an increase in private consumption, as a small section of the population continues to benefit from the development of the oil sector. c) Fiscal and monetary policy

The state budget for 2004 (which differs from the consolidated budget reported in our forecast tables) targets a deficit of Manat315bn (US$63m, or 0.8% of GDP), based on real GDP growth of 9% and an oil price of US$20/barrel. We forecast oil prices in 2004 to average US$33.5/b for dated Brent Blend, which is considerably higher than the government’s assumption. Since over 40% of budget revenue comes from the oil sector, we expect the budget deficit to be lower than the government target. The state budget is forecast to record a similar deficit in 2005, as we anticipate that a rapid rise in oil production will outweigh the decline in oil prices in that year.

NT\543520EN.doc 12 PE 349.244 Monetary policy will be relatively loose. Nevertheless, the Azerbaijan National Bank (ANB, the central bank) may have to tighten monetary policy temporarily by raising interest rates, following an inflationary spike in the first quarter. Year-on-year consumer price inflation is now above the 4% rate at which the ANB is committed to increasing its benchmark refinancing rate. The problem with tightening the monetary stance is that it will lead to a real appreciation of the manat, at a time when the government is attempting to encourage a slow nominal depreciation of the currency against the US dollar through a policy of informal exchange-rate targeting. Sterilising the large hard-currency inflows from FDI will prove difficult, as the policy tools available are limited and the government intends to spend some of the money in the overseas oil windfall fund. The ANB has already hinted that it is considering raising the level of inflation at which it is committed to increasing the refinancing rate. This indicates that it is willing to tolerate slightly higher inflation in order to prevent an appreciation of the currency. d) Exchange rates

The manat has continued to depreciate in nominal terms against the US dollar, albeit at a decelerating rate, but the spike in inflation in the first quarter of 2004 has prevented a real depreciation of the currency. The slowing of the rate of nominal depreciation is attributable to massive capital inflows, as well as the continued weakening of the US dollar. The exchange rate was Manat4,914:US$1 at the end of May 2004, representing a nominal depreciation of 0.3% year on year; in real terms, the exchange rate had appreciated by 5% year on year. Rising FDI inflows in 2004-05 will complicate efforts to engineer a nominal depreciation of the manat against the US dollar. The currency is therefore expected to weaken in nominal terms against the US dollar by less than 1% on average in 2004-05. e) External trade

Hydrocarbons development will produce burgeoning current-account deficits over the forecast period. Capital imports and services related to construction, transport, drilling and consulting will increase sharply in 2004-05, since Azerbaijan's industrial base is insufficiently developed to service oil and gas investors. Import expenditure will outweigh export revenue by a wide margin, resulting in a current-account deficit of about 33% of GDP in 2004. Although import costs will remain high in 2005, the external deficit will fall marginally, since oil production is set almost to double in that year. Sizeable external deficits are unlikely to threaten macroeconomic stability, since they will entirely be covered by FDI and multilateral financing. f) Membership of the WTO

Azerbaijan’s image has been affected by the Nagorno-Karabakh conflict, human rights abuses and accusations of corruption. Despite support from the European Union, the United States, Japan and Turkey, Azerbaijan still has a long way to go in order to comply with the WTO rules governing membership.

4. Conclusions

Azerbaijan inherited from the Soviet Union a less developed industrial structure than its two Caucasian neighbours. The main product of the economy apart from oil and gas is cotton. The Azerbaijani government claims contracts with a value of up to € 30 billion with international oil companies for exploration and production concessions on the Caspian continental shelf. The routing of export pipelines has become a major regional and even global political issue. Azerbaijan hopes to secure enough revenues within five years to be able to free itself from

NT\543520EN.doc 13 PE 349.244 international aid.

Due to the unstable domestic situation Azerbaijan embarked on economic reforms later than most other countries of the former Soviet Union. Significant progress has been achieved since 1996 in privatisation and land reform, but corruption remains a major problem.

The government's policies ensure that Azerbaijan remains a two-tier economy, with the important oil and gas sector continuing to attract resources, and inefficient and neglected industrial, services and agricultural sectors. This will preserve a highly uneven pattern of income distribution. In 2002, statistics showed that 42% of Azeris had a monthly income of less than USD 25.

IV. RELATIONS WITH THE EUROPEAN UNION

1. Background

The European Union is a long-standing partner of Azerbaijan and is seeking to develop Euro- Azeri relations and help Azerbaijan become a fully-fledged trading nation. With Georgia and Armenia, Azerbaijan has been included in the 'European Neighbourhood Policy', approved at the Brussels summit of June 2004. This aims to integrate neighbouring countries politically and socially, without offering membership. The European Union may be able to use the incentive of access to the EU market as a means to encourage a settlement of the Nagorno-Karabakh dispute.

Azerbaijan is the EU’s largest trading partner in the Caucasus although this primarily relates to cotton, oil and gas. Since 1993 total trade with the EU has grown steadily. (In contrast, trade with the CIS states has fallen over the past 7 years with the result that exports are 32 % of levels in 1992 and imports 66%.) However, since 1999, the huge increase in oil imports has resulted in a trade deficit for the EU1.

An agreement on trade, commercial and economic cooperation was concluded in 1989 between the EEC and the Soviet Union. After the collapse of the USSR, this agreement has applied mutatis mutandis to bilateral relations between the European Communities and each of the independent states, including Azerbaijan. In 1995, the possibility of a new Partnership and Cooperation Agreement (PCA) between the Republic of Azerbaijan and the European Union was raised, following a Commission proposal. A summit held in Luxembourg in June 1999 adopted a Joint Declaration on relations between the EU and the Caucasus countries including Azerbaijan. The PCA entered into force on 1 July 19992.

This is a mixed agreement covering sectors that fall within both Community and national jurisdictions. As far as trade relations between Azerbaijan and the European Union are concerned, the agreement replaced the 1989 agreement on trade, commercial and economic cooperation between the Community and the former Soviet Union.

Trade in textiles is covered by a specific agreement although the volume of trade with the EU is currently negligible.

1 See Annex VIII. 2 OJ L 246, 17.9.1999.

NT\543520EN.doc 14 PE 349.244 2. Partnership and Cooperation Agreement

This agreement was concluded for an initial period of ten years1 and covers cooperation in all non-military areas. It comprises the following elements:

- the establishment of political dialogue;

- provisions on trade in goods, employment, the establishment and business of companies, cross-border provision of services, payments and capital, competition, the protection of intellectual, industrial and commercial property rights, legislative and economic cooperation, respect for democratic principles and human rights, cooperation on action to prevent illegal activities and to prevent and control illegal immigration, cultural cooperation and financial cooperation;

- a conditionality clause concerning human rights, which means that the agreement would be suspended, unilaterally in the case of violations of essential parts of the agreement, such as respect for democratic principles, human rights and the principles of the market economy;

- the creation of an institutional structure with a Cooperation Council, a Cooperation Committee and a Parliamentary Cooperation Committee with an annual political dialogue;

- a separate protocol on provisions relating to customs cooperation.

Implementation of the PCA will make it possible to ensure coherence between the different aspects of EU-Azeri relations21. The PCA will also play a growing role in developing trade and investment.

3. Current and future EU-Azeri relations3

In its resolution of 13 March 19974 on the proposal for a decision concerning the PCA between the European Union and the Republic of Azerbaijan, the European Parliament took the view that a provision should be included for sanctions in the event of failure to respect human rights and called for greater vigilance in this area. The partnership agreement was meant to enable Azerbaijan to carry through the necessary political and economic reforms so that it could move closer to European standards.

From the analysis of the current political and economic situation in Azerbaijan, it has to be concluded that the conditionality clause relating to human rights has not been complied with and the economic reforms necessary for raising the standard of living for the people of Azerbaijan have not been achieved.

The first meeting of the EU-Republic of Azerbaijan Cooperation Council took place on 12 October 1999. The parties emphasised then the importance they attached to democratic values, respect for human rights and the principles of the market economy but progress remains limited.

1 It expires in 2009. 2 See Annex V, p. 22. 1 OJ C, 115, 14.4.197; such as the political dialogue on foreign policy issues of common interest, democracy and human rights, econmic cooperation, assistance, e.g. within the framework of Tacis, and regional cooperation. 3 See Annexes VI-VIII. 4 OJ C 115, 14.4.1997, p.193.

NT\543520EN.doc 15 PE 349.244 The fourth meeting of the Trade, Investment, Energy and Transport sub-committee was held in April 2004. where there was a substantive dialogue allowing an open and frank exchange of views

The Council has indicated that, as the EU enlargement process moves forward, relations between the Union and the three countries of the southern Caucasus will assume increased importance and that peace and stability in the region will have a greater impact on the security of the European continent as a whole. The European Union has welcomed the stepping-up of efforts to resolve the Nagorno-Karabakh conflict and has reaffirmed its firm support for the process. In August 2002, the Council Presidency of the EU confirms its support for the territorial integrity of Azerbaijan, and recalled that it does not recognise the independence of Nagorno-Karabakh.

The future role of the Cooperation Council will be to consider how to support efforts to resolve the conflict in Nagorno-Karabakh, to encourage regional cooperation in the Caucasus, to consider how to implement the PCA in general, and measures facilitating trade and investment in particular, to strengthen the democratisation process and respect for human rights and to cooperate closely in the fight against drug trafficking.

EU assistance

Since its independence, Azerbaijan has benefited from a total of about €400 million in Community aid, in the form of humanitarian aid, food aid and budgetary food security assistance, exceptional assistance and rehabilitation and technical assistance (see table below). The European Union is contributing to the Azeri Programme on Poverty Reduction and Economic Development through food security programmes and Tacis. In December 2001 the Commission adopted the Azerbaijan Country Strategy Paper (CSP), which outlines the EU’s objectives regarding aid to Baku for the period 2002-2006. Tacis will play an increasingly important role in this respect. It will support the institutional, judicial and administrative reforms as well as the private sector and assistance for economic development.

EC-assistance to Azerbaijan (€ million): 1992- 2002- 2004- 1995 1996 1997 1998 1999 2000 2001 1994 2003 2006 Tacis National 20.50 6.00 8.00 8.00 8.00 8.00 7.00 7.00 14.00 30.00 Allocations Exceptional 10.00 10.00 10.00 0 Assistance ECHO 31.09 28.82 7.70 6.10 4.10 3.36 1.5 0 FEOGA 43.0 22.65 Food security 15 16 14.0 12.0 20.0 (30.0) Rehabilitation 3.0 4.0 4.5 3.2 3.674 Exceptional Humanitarian 8.0 1.5 Aid 30 + Total 59.59 77.82 56.35 34.1 40.6 38.06 22.17 7 34 (30) Total 1992-2003: Million €399.674 (€429.694 m if potential Food Security Allocations are included)

With the entry into force of the PCA and the improvement of the economic situation in the country, the focus of EU assistance is shifting from humanitarian aid to rehabilitation and reconstruction and promotion of trade and investment links. Until progress is made over

NT\543520EN.doc 16 PE 349.244 Nagorno-Karabakh, regional stability will continue to be threatened and development stifled. The EU is therefore encouraging a solution to be reached to the Nagorno-Karabakh conflict by supporting regional cooperation, and post-conflict rehabilitation and by linking assistance of all kinds.

The EU feels strongly that the Minsk group (OSCE) offers the best mechanism for the settlement of the Nagorno-Karabakh issue and fully supports the efforts made by the governments in Baku and Yerevan to improve dialogue in recent months.

INOGATE, the Tacis-funded cross-border energy initiative, will begin setting up small-scale cross-border investment projects as a follow up to the Umbrella Agreement. Projects aimed at the three Caucasus countries, such as improving cross-border metering, also form part of this.

The future development of EU-Azeri relations is set out in the PCA and the Joint Declaration adopted at the Luxembourg Summit in 1999. The main areas of activity will concern the implementation of the PCA, the promotion of trade, investment and the resolution of the Nagorno-Karabakh conflict. EU assistance should focus on these areas. The Commission has appointed a special envoy to the Azeri government.

The Commission in May 2004 recommended the inclusion of Armenia, Azerbaijan and Georgia within the scope of the European Neighbourhood Policy. The European Security Strategy, adopted by the European Council in December 2003, clearly identifies the South Caucasus as one of the regions in which the EU should take a "stronger and more active interest".

The role of the European Parliament

The European Parliament has expressed a willingness to strengthen contacts with the countries of the South Caucasus, including Azerbaijan, most notably through the relevant interparliamentary delegation. At the third Parliamentary Cooperation Committee meeting, held in Brussels on 25 and 26 February 2002, MEPs and Azeri MPs asked the EU to increase its technical assistance to Azerbaijan where possible, because the EUR 370m granted in aid since 1992 had still not reached the level of aid received by other comparable regions in the world. The members of the CPC also regretted the fact that the conflict between Baku and Yerevan over Nagorno-Karabakh was continuing to undermine security and stability in the region and hamper economic development in Azerbaijan and the other countries of the South Caucasus.

They called on the OSCE (especially the Minsk Group), therefore, to redouble its efforts and put forward proposals for a fair and lasting settlement of the dispute. According to the CPC, the Nagorno-Karabkah issue was also preventing an improvement in regional cooperation in Transcaucasia, despite the pressing problems of international crime, drug trafficking to Europe and environmental pollution.

NT\543520EN.doc 17 PE 349.244 ANNEX I

Source: CIA World Factbook

NT\543520EN.doc 18 PE 349.244 ANNEX II

NT\543520EN.doc 19 PE 349.244 ANNEX III

COMPOSITION DU PARLEMENT APRES LES ELECTIONS DU 5 SEPTEMBRE 2000

Nombre de Nombre de Nombre de Sièges dans Sièges dans Total Nom du Parti Sièges les les pour les Total % Proportionnel CMU1 CMU CMU 1er scrutin 2ème scrutin Parti de l’Azerbaijan nouveau (YAP) 16 56 3 59 75 62,3 Solidarité civile 3 3 6,4 Parti de l’indépendance nationale 1 1 2 2 3,9 (ANIP)2 Front populaire 4 1 1 2 6 11,0 Parti Yurddash 1 1 1 Parti communiste 2 2 6,3 Patrie 1 1 1 Alliance pour le bien de l’Azerbaïdjan 1 1 1 1,0 Musavat3 2 2 2 4,9 Prospérité sociale 1 1 1 Ana Vatan 1 1 1 Indépendants 26 3 29 29 Non-inscrits 1 1 1 TOTAL 25 89 11 100 125 Source: OSCE

1 Circonscription à mandat unique (CMU). 2 Les deux candidats de l’ANIP ne sont pas reconnus par leur parti; ils en ont été exclus. 3 Bien que le parti ait décidé de boycotter le travail du parlement, un membre du parti, Vagif Samed Oglu a refusé de se soumettre à cette décision.

NT\543520EN.doc 20 PE 349.244 ANNEX IV

Azerbaijan presidential election, 2003

A presidential election was held on 15 October 2003. As expected, Ilham Aliyev, son of the outgoing president, Heydar Aliyev, was easily elected in an election which international observers held not to be free or fair.

Parties • AMIP - Azärbaycan Milli Istiqlal Partiyasi (Azerbaijan National Independence Party) • AP - Ädalät Partiyasi (Justice Party) • AXCP - Azärbaycan Xalq Cäbhäsi Partiyasi (Azerbaijan Popular Front Party) • MB - Milli Birlik (National Unity) • MMP - Müasir Müsavat Partiyasi (Modern Equality Party) • MP - Müsavat Partiyasi (Equality Party) • VHP - Vätändass Hämräyliyi Partiyasi (Civil Solidarity Party) • YAP - Yeni Azärbaycan Partiyasi (New Azerbaijan Party)

National summary Candidate Party Votes % ------Ilham Aliyev YAP 2,438,787 80.0 Hafiz Haciyev MMP 9,990 00.3 Lalä Sovket Haciyev MB 100,558 03.3 Qudrat Hasanquliyev AXCP 13,624 00.4 Ilyas Ismayilov AP 24,926 00.8 Ehtibar Mammadov AMIP 62,401 02.0 Isa Qambar MP 372,385 12.2 Sabir Rustamxanli VHP 23,730 00.8 ------Total 3,046,401 ------

Source: Wikipedia online encyclopedia

NT\543520EN.doc 21 PE 349.244 ANNEX V

AZERBAIJAN - ECONOMIC STRUCTURE

Annual indicators

1999a 2000a 2001a 2002a 2003a GDP at market prices (Manat bn) 18,875.4 23,590.5 26,578.0 29,601.8 35,053.4 GDP US$bn 4.6 5.3 5.7 6.1 7.1 Real GDP growth (%) 7.4 11.1 9.9 10.6 11.2b Consumer price inflation (av; %) -8.6 1.8 1.6 2.8 2.1 Population (m) 8.0 8.1 8.1 8.2 8.3b Exports of goods fob (US$ m) 1,025.2 1,858.3 2,078.9 2,304.9 2,624.6 Imports of goods fob (US$ m) 1,434.4 1,539.0 1,465.1 1,823.3 2,723.1 Current-account balance (US $ m) -599.8 -167.9 -51.9 -768.4 -2,020.9 Foreign-exchange reserves excl gold (US$ m) 672.6 679.6 896.7 721.5 820.9 Total external dbt (US$ bn) 0.9 1.2 1.2 1.3 1.6b Debt-service ratio, paid (%) 6.6 8.3 5.5 6.9 5.5b Exchange rate (av) Lari:US$ 4,120.2 4,474.1 4,656.6 4,860.8 4,910.7 a Actual. b Economist Intelligence Unit estimate.

Origins of gross domestic product 2002 %of total Components of gross domestic product 2002 % of total Agriculture 14.2 Public consumption 88.7 Industry 34.9 Private consumption 8.6 Construction 10.8 Gross fixed investment 17.6 Transport & communications 9.8 Net exports of goods & services -16.0

Principal exports 2003 % of total Principal imports 2003 % of total Oil products 86.0 Machinery & equipment 26.1 Food industry 4.9 Metals 19.0 Chemicals 2.0 Food products 11.8

Main destination of exports 2003 % of total Main origin of imports 2003 % of total Italy 51.9 Russia 14.6 France 8.1 Turkey 7.4 Russia 5.7 Germany 6.5

Source: EIU

NT\543520EN.doc 22 PE 349.244 ANNEX VI Trade relations EU(15)-Azerbaijan 2003 Structural analyses EU-imports (cif) 1000 € - % - Main products (SITC division): SITC 1000 € % of Intra- 3rd total industry rev. trade intensity (1) Total (A+B+C) 1.065.446 100,0 PETROLEUM, PETROLEUM PRODUCTS 33 1.016.46 95,4 198,7 AND RELATED MATERIALS 8 of which: PROFESSIONAL, SCIENTIFIC + 87 8.666 0,8 48,6 CONTROLLING INSTRUM. + APPARATUS, N.E.S. A: Raw materials 1.028.884 96,6 VEGETABLES AND FRUIT 05 8.254 0,8 183,0 Food, beverages and tobacco 9.321 0,9 ORGANIC CHEMICALS 51 6.412 0,6 164,5 (0+1) Raw materials (2+4) 3.071 0,3 MACHINERY SPECIALIZED FOR 72 3.667 0,3 13,1 PARTICULAR INDUSTRIES Energy (3) 1.016.492 95,4 GENERAL INDUSTR. MACH. + 74 2.943 0,3 5,2 EQUIPMENT, N.E.S., MACHINE PARTS, N.E.S. B: Manufactured articles 35.249 3,3 MANUFACTURES OF METALS, N.E.S. 69 2.505 0,2 7,7 Chemicals (5) 6.851 0,6 CORK AND WOOD MANUFACTURES 63 2.141 0,2 118,8 (EXCLUDING FURNITURE) Machinery and transport eq. (7) 9.535 0,9 TEXTILE YARN, FABRICS, MADE-UP 65 1.670 0,2 89,6 ARTICLES, N.E.S., + RELATED PRODUCTS Other manufactured products 18.864 1,8 NON-FERROUS METALS 68 1.429 0,1 101,1 (6+8)

EU-exports (fob)

NT\543520EN.doc 23 PE 349.244 1000 € - % - Main products (SITC division): SITC 1000 € % of Intra- 3rd total industry rev. trade intensity (1) Total (A+B+C) 722.604 100,0 GENERAL INDUSTR. MACH. + 74 110.685 15,3 5,2 EQUIPMENT, N.E.S., MACHINE PARTS, N.E.S. of which: IRON AND STEEL 67 96.800 13,4 1,8 A: Raw materials 47.074 6,5 MANUFACTURES OF METALS, N.E.S. 69 62.376 8,6 7,7 Food, beverages and tobacco 34.605 4,8 MACHINERY SPECIALIZED FOR 72 52.190 7,2 13,1 (0+1) PARTICULAR INDUSTRIES Raw materials (2+4) 5.817 0,8 POWER GENERATING MACHINERY AND 71 50.972 7,1 2,7 EQUIPMENT Energy (3) 6.652 0,9 ELECTR. MACH., APP. + APPLIANCES, 77 40.878 5,7 1,6 N.E.S. + ELECTR. PARTS THEREOF B: Manufactured articles 669.765 92,7 ROAD VEHICLES (INCLUDING AIR- 78 36.859 5,1 0,1 CUSHION VEHICLES) Chemicals (5) 54.114 7,5 TELECOMMUNIC. + SOUND RECORDING + 76 32.607 4,5 2,5 REPROD. APPARATUS + EQUIPMENT Machinery and transport eq. (7) 352.297 48,8 PROFESSIONAL, SCIENTIFIC + 87 27.003 3,7 48,6 CONTROLLING INSTRUM. + APPARATUS, N.E.S. Other manufactured products 263.354 36,4 ESSENTIAL OILS + PERFUME 55 18.749 2,6 4,1 (6+8) MATERIALS; TOILET, POLISH + CLEAN. PREPARAT. Source: COMEXT 2 database, EUROSTAT Production: JDa/DG4/European Parliament (1) The index can vary between 0 and 200: 0 means only exports, 200 only imports and 100 means balance in trade Index: (((x+m)-(x- m))/(x+m))*100

NT\543520EN.doc 24 PE 349.244 ANNEX VII

Trade of the EU(15) with Azerbaijan: 1995-2003

1000 ECU/€ EU-imports (cif) EU-exports (fob) Balance 1995 48.052 120.326 72.274 1996 30.008 168.901 138.893 1997 67.856 256.237 188.381 1998 49.659 330.293 280.634 1999 444.064 215.104 -228.960 2000 979.192 299.651 -679.541 2001 1.171.872 337.276 -834.596 2002 1.136.524 503.287 -633.237 2003 1.065.446 722.604 -342.842 Jan-May: 2003 477.716 272.218 -205.498 Jan-May: 2004 408.767 427.198 18.431 Source: COMEXT database, EUROSTAT Production: JDa/DG4/European Parliament

NT\543520EN.doc 25 PE 349.244/Ann.

EN EN

Trade of the EU(15) with Azerbaijan by Member States EU-imports (cif) 2003 January- May: 1000 € - % - 2003 2004 % change Total 1.065.446 100,0 477.716 408.767 -14,4 of which: France 149.063 14,0 11.642 29.383 Netherlands 1.267 0,1 564 832 Germany 195.757 18,4 102.440 78.487 Italy 625.578 58,7 308.715 260.865 United Kingdom 20.859 2,0 13.113 4.859 Ireland 79 0,0 26 0 Denmark 28 0,0 28 204 Greece 34.301 3,2 32.907 9.996 Portugal 0 Spain 2.912 0,3 449 1.421 Belgium 2.076 0,2 1.102 477 Luxembourg 457 0,0 222 101 Sweden 17 0,0 1 2 Finland 157 0,0 83 65 Austria 32.895 3,1 6.424 22.074

EU-exports (fob) Total 722.604 100,0 272.218 427.198 56,9 of which: France 49.375 6,8 15.600 41.027 163,0 Netherlands 56.135 7,8 18.998 30.014 58,0 Germany 186.946 25,9 69.235 88.596 28,0 Italy 106.173 14,7 37.772 50.838 34,6 United Kingdom 198.700 27,5 78.610 144.516 83,8 Ireland 5.672 0,8 2.888 1.008 -65,1 Denmark 9.153 1,3 2.338 2.071 -11,4 Greece 10.279 1,4 3.849 3.814 -0,9 Portugal 462 0,1 344 517 50,4 Spain 11.902 1,6 4.681 5.838 24,7 Belgium 32.039 4,4 20.056 18.329 -8,6 Luxembourg 1.302 0,2 344 739 114,7 Sweden 30.845 4,3 8.903 25.323 184,4 Finland 7.512 1,0 2.845 5.091 79,0 Austria 16.107 2,2 5.756 9.478 64,7 Source: COMEXT database, EUROSTAT Production: JDa/DG4/European Parliament

NT\493297EN.doc 26/27 PE 325.779/Ann

EN ANNEX VIII

Trade of the EU(15) with Azerbaijan: 1995-2003

NT\543520EN.doc 27 PE 349.244/Ann.

EN EN