A Word from the Executive Director of AmCham Dear Readers,

Summer / Issue 6 Striving to be up to date with the latest changes in the legislation affecting our members, we are the first to bring to your attention a topic that is probably the most Credits relevant for all this summer - new migration procedures, introduced by the Government of Azerbaijan with effect Editor-in-Chief: from July 1st 2009. Interviews with the Head of the State Nargiz Nasrullayeva-Muduroglu Migration Service, Chief of Labour Policy Department Editor: and Chief of Reimbursement and Labour Relations of the Emma Triller Ministry of Labour provide the Government's perspective on the question of labour and employment of both local Design & layout: and foreign nationals. QuadroM Media Agency Another important piece of legislation highlighted in this Photographers: issue is the New Customs Code. Do not miss an expert Dena Barmas overview of the changes that the new code brings and the Huseyn Asim-zadeh prognosis on its adoption.

Journalist: We are very happy with the way this issue has turned out Ayten Aliyeva and hope that you will agree with us. Contributors: Kind regards, Natalia Corobco Jim Dillahunty Nargiz Nasrullayeva-Muduroglu Michael Kunz Emil Garayev Narmin Mirzazade Natik Mamedov Brian O’Shea Editor’s Comment Advertisers: Dear Readers, Ace Forwarding Caspian Austrian Air As our cover suggests, we have spent the last few months Azercell grappling with the impending procedural changes in the Bakcell migration process, new legislation and amendments to Baker & McKenzie existing legislation. We should like to express our gratitude Holiday Inn Baku Airport to the Ministry of Labor and the State Migration Service for Hyatt Hotels providing answers to questions on these issues. Mozaik LLC Nipro’s Allied’s International While we applaud and welcome the initiative to streamline Nobeil Oil procedures and increase the ease of application for migration Royal Bank and labor permits, we initially found it difficult to find reliable Shieldbearer and precise information. This has changed. Our interview Cover artwork: with the Head of the State Migration Service and indeed his © McCann Erickson Azerbaijan presentation at our Members’ luncheon mark an important milestone in AmCham’s dialog with the Government, Printing: opening a long desired channel of communication. We Nurlar welcome this very positive development and look forward to increased cooperation with Government agencies to work Publisher: toward our common goal of strengthening the economy and American Chamber of Commerce promoting prosperity through a healthy business climate. in Azerbaijan Tel: (+994 12) 497 13 33 We shall be in communication with the State Migration Fax: (+994 12) 497 10 91 Service to further clarify issues arising from the release of www.amchamaz.org this information.

Advertising opportunities: We thank all contributing editors and advertisers for their Please contact the Editor unfailing support of Impact. We hope this issue will be the Emma Triller perfect flight companion on your travels this summer. [email protected] Tel: (+994 12) 497 13 33 Have a wonderful vacation! The articles in IMPACT AZERBAIJAN Emma Triller express the opinions of the authors and do not necessarily reflect the position of the American Chamber of Commerce in Azerbaijan. 1 contents

IN FOCUS 4 Interview: State Migration Service 9 Azerbaijan: Human Capital Development By Natalia Corobco

The imminent implementation of a one window policy and the overhaul of application How to design a strategy for human capital procedures for a residence visa/work permit development in Azerbaijan? have given rise to many questions and An in-depth analysis of talent management concerns. Mr. Arzu Rahimov gives information in the new economy: Current Trends, which will clarify the issue. Opportunities, and Areas for Improvement.

8 Interview: Ministry of Labor 14 Azerbaijan’s New Customs Code By Brian O’Shea

Changes to the Customs Code may provide a solution to the problems facing importers in Azerbaijan.

18 Customer Service: Part III: The Flow of Information By Jim Dillahaunty

Mr. Eldar Mammadov and Mr. Abulfat The third in the 3 part series on Customer Magerramov Labor Policy Department Service discusses the art of gathering provide answers to some of our most pressing insightful and useful information from your questions about amendments to the Labor customers and the flow of information Code. between an organization and its customers.

2 Summer / Issue 6 contents

MEMBERS AMCHAM AZERBAIJAN 20 Interview: Alinaghi Asghari, Chairman, 30 About us AmCham Tax & Customs Committee Committees play an important role in sharing information, raising issues of common concern and proposing possible solutions. How can they be made more effective?

22 Azerbaijan Introduces Preferential Regime for Oil and Gas Industry

As a member of AmCham, your company has access to a vast network of business information and contacts. 31 AmCham Structure 32 AmCham at home We had the very great pleasure to be addressed by Ambassador Richard Morningstar on the U.S. Government’s New legislation to benefit oil and gas contractors energy policy in the Caspian region and subcontractors is to be introduced. Effective implementation will depend upon the prevention of overly subjective assessment and the timely 33 Caspian Oil & Gas Exhibition release of information to potential beneficiaries.

24 Real Estate Opportunities: New Trends in Residential & Commercial Development This article discusses the Azerbaijani law issues associated with recent market developments and legislative initiatives designed to bolster market development and promote real estate investment in Azerbaijan. 34 AmCham abroad: ECACC Conference 28 Business Leaders Join Efforts to Advance Reform through WTO 35 Business Events 39 Committee Highlights 42 Members’ News and Events

45 AmCham Projects: Consumer Price Index Report for 2009 Website Updates 47 M2M Discount Program

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Interview: Arzu Rahimov, Head of State Migration Service

In order to improve the mechanism of migration Impact was granted an interview management and to simplify the procedures for granting permissions to foreigners and with Mr. Arzu Rahimov, Head stateless persons for lawful residence and engaging in work activity, as well as to ensure of the State Migration Service transparency in this sphere, the President of the Republic of Azerbaijan signed a Decree on of Azerbaijan. He answered Application of the “Single Window” Principle in migration management from 1 July 2009. our questions about application The State Migration Service of the Republic of Azerbaijan was appointed as a unit body procedures for the combination implementing the “Single Window” principle. We asked the Chief of the State Migration work and residence permit card. Service of the Republic of Azerbaijan Mr. Arzu Rahimov to answer our questions about recent changes made in the migration management

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mechanism, and appeal procedures for obtaining cards and required documents.

What are the appeal procedures for obtaining residence cards and work permits and which documents should be submitted to the State Migration Service? What is the duration of the process? First of all, I want to clarify the reasons for such changes. As you know, the economic growth, rapid development of the oil and non-oil sector and huge investment opportunities attract foreigners to Azerbaijan. Regulation of migration processes and insurance of transparency are the main purposes of these changes. This Decree simplifies this process. Concerning the relevant required documents, all information is presented on the official Internet site of the State Migration Service www.migration.gov.az. The English version of the website will be available from 15 June. Consideration of the documents should take 20 working days from the date of submission of documents to the State Migration Service. If before foreigners had to apply to different ministries and relevant bodies for obtaining cards, now related to these issues he/she will apply only to the State Migration Service.

There are foreigners working some days offshore and some days onshore. What are the procedures for them? The foreigners arriving in and working in the Republic of Azerbaijan need to obtain cards for lawful temporary residence and engaging in labor activity. If the validity period of card is expired and the foreigner hasn’t completed his/her work, he/she has to apply to the State Migration Service for extension of the period of temporary residence card and work permit indicating the purpose of extension. For this purpose the foreigner must submit a letter from the organization indicating the reasons. If the foreigner enters If the foreigner has obtained a temporary residence card from the country as a labor migrant under a visa regime for a the State Migration Service, if he/she has notification, and if period of 30 days within 30 days he/she has to apply to the we have the list of such persons we will gradually invite and State Migration Service in order to legalize his/her staying provide them with a new cards. in the country. After relevant procedures, this foreigner will be provided with the temporary residence card and work Do you have enough resources to cope with the huge permit. flood of applications after 1 July? We would not start a process if we were not sure of our What will the procedure be for a foreigner who has resources and opportunities. terminated a contract with one company and concluded a contract with another one? Is the new card valid for all entry points by air, land and If the foreigner has terminated his contract with one company sea? and concluded a contract with another one, the first company Yes. At the borders of all types of transport there are border must inform us about termination of the contract. Then the control points. foreigner must submit the copy of the contract concluded with the other company and after this he/she can obtain a new A medical certificate is one of the required documents. permission card and work permit. Could you please provide more information on the exact medical tests to be carried out? Who can issue the If the foreigner has obtained a temporary residence card medical certificate? and work permit before 1 July and the validity period of The certificate could be issued in any clinic. Concerning his/her document expires in October of this year, will he/ tests, we don’t stipulate any special tests, we just need a she have to obtain a new one? Health Certificate. That is the current situation. In the near

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future we plan to open a clinic under the patronage of the State Migration Service. After this we will determine which laboratorial tests will be carried out for obtaining a medical List of documents, duration of the process and certificate. state fees for obtaining a new card.

Children under the age of 14 do not always travel with Foreigners and stateless persons must submit the following their parents. Will you issue a separate document for documents to the State Migration Service for obtaining them to travel? a permit for temporary residence in the territory of the Yes, as in other countries we will issue a separate card to all Republic of Azerbaijan: family members of migrants. Naturally, if the parents allow their children to travel. • application for granting permission for temporary residence - 1pcs; • copy of passport or equivalent document and document If the foreigner has lost his/her permission card abroad confirming the identity of stateless persons; how can he/she re-enter the country? • notarized document or in other form equal to notarized This person should apply for an entry visa to the Embassy of document certifying the existence of cases giving a the Republic of Azerbaijan in his country and after entering basis for granting permission for temporary residence; the country he/she should apply to the State Migration • medical certificate; Service with a statement that he lost the card. We’ll research • copy of the relevant document giving the right for the case, and if he really did have it before, we will restore foreigners and stateless persons to reside and stay in the card. the Republic of Azerbaijan; • finger prints meeting the requirements of biometric What if there is no Azerbaijan Embassy in the country? identification Where should the person apply for the entrance visa to • 2 photos (3,5x4,5cm); Azerbaijan? • notarized written consent of children aged 14 - 18 In these cases the foreigner can obtain a visa through a third years. country where the Azerbaijan Embassy is. • document giving basis on moving to the place of residence (extract on the state registration of the property What exemptions will be made for employees working right from the state register of real estate, certificate, on longer running projects who need to stay longer than rent or tenancy agreement or other document specified the 5 year limit? by the legislation of the Republic of Azerbaijan) or the According to the law of Azerbaijan Republic a foreigner application of the persons who provide the citizen with may engage in labor activity in the country for not the place of residence; • receipt for payment of state fee: more than 5 years. After 5 years he/she should leave If the foreigner’s or stateless person’s application is related to Azerbaijan for one year. The law is the law. There will be obtaining a work permit in order to engage in paid labor activity no exemptions. in the territory of the AR and permit for temporary residence on the basis of a work permit, they must submit the following What if the validity period of the visa is expiring, but the documents along with the abovementioned documents: Card is not issued for a foreigner yet? We issue a receipt to the person who submitted documents • notarized copy of the document confirming possession and applied for the card to the State Migration Service. They of foreign employee of the required educational or can submit this receipt to the relevant bodies. professional qualification to implement intended work; • reference substantiating necessity of employment of How can one invite his/her relatives if he/she is a labor foreign employee in the intended job vacancy; migrant in Azerbaijan? • copy of the regulation or certificate about the state First of all, he should send an invitation letter to his/her registration of juridical person according to the relative, and the relative should apply to the Azerbaijan legislation of the Republic of Azerbaijan who submitted Embassy for entrance visa. If the foreigner wants to invite the application and the document confirming identity of one or several relatives who will stay with him in the country host physical person; for a longer period, he should apply to the State Migration Service of the Republic of Azerbaijan and explain the Consideration of the documents should take 20 working reasons why he needs these people to stay with him. If there days from the date of submission of documents and after this is a fundamental reason for this (spouse, son, daughter and process the State Migration Service gives relevant decision etc) we issue a residence card for them. All such cases are on granting permission according to the legislation. At present the state fees for granting a work permit for addressed individually. engaging in paid labor activity in the territory of the Republic of Azerbaijan are determined in the amount of 1000 AZN and Thank you very much Mr. Rahimov. We were pleased to for a permit for temporary residence in the amount of 6 AZN. meet with you.

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in focus

Interview: Ministry of Labor

Eldar Mammadov, Chief of Labour Policy Department and Abulfat Magerramov, Chief of Reimbursement and Labour Relations answered our members’ questions

When did the latest changes and amendments to the If the number of employees is very low, the head of the Labor Code come into effect? organization is automatically responsible for office safety, and The amendments and changes have been in effect since 19 this must be mentioned in his/her contract. May 2009 when they were first published. In a manufacturing workplace where hazardous conditions might be present or machinery operated, organizations must What is one of the changes to the Labour Code in regard have one person responsible for HSE issues, regardless of to the terms of a contract? the number of personnel. One change is that a short term contract becomes permanent after 5 years. This refers to any fixed term employment Is there any plan to increase the duration of maternity contract which is extended and exceeds 5 years. leave (70 calendar days before and 56 calendar days Example: an employee is hired on a fixed term contract (e.g.1 after the confinement)? year) in 2009. If his contract is renewed every year, it remains Not at present, but it might be under consideration in the a fixed term one year contract, but when it exceeds 5 years, in future, in accordance with international standards. 2014, it becomes an indefinite contract. This refers only to employment contracts regulated by the What is the position of an employee on partially Labor Code. compensated social vacation if she wishes to return to work earlier than the stipulated 126 days? How long must companies wait for an employee returning Her date of return is entirely up to her. There is no restriction from military service to register for reinstation? preventing her from returning earlier if she so wishes. An employee returning from military service must report for work within 60 days if he wishes to retain his position. If an employee wishes to take extra time (up to 3 years) for childcare, will she receive compensation? How much The Labor Code stipulates that the employee responsible is due to her? for office safety should do only this job and no other. This is termed partially compensated social vacation. The How does this rule apply to organizations with a smaller employee is compensated by the Social Protection Fund. workforce. Is the regulation different for administrative For a child up to 18 months the mother receives 20 AZN per and for manufacturing workplaces? month. For a child from 18 months to 3 years, the mother If the number of employees exceeds 50, no service is receives 10 AZN per month. required to be set up, but one employee must be designated responsible for office safety. Is there any suggestion to calculate vacations on the basis of If the work force numbers between 50 and 500, a committee the calendar year rather than the work (contractual) year? to deal with safety issues must be established. In order to make the calculation more accurate, this has to be If the number exceeds 500, the positions of HSE Manager calculated on the basis of the work year. At present there is no and Deputy Manager must exist. plan to revise the Labor Code in regard to this.

8 Summer / Issue 6 in focus

Azerbaijan: Human Capital Development

by Natalia Corobco, MBA IMG strategy & communications

Azerbaijan has experienced several years of strong economic growth coupled with poverty reduction and job creation. Almost half a million new jobs were created1 from 2003 to 2007. In the same period official unemployment went down by over 30% to 6.5%. Despite these positive indicators, Azerbaijan continues to rank low in the Global Competitiveness Index (69 out of 134 countries). The quality and quantity of education is one of the worst performing categories.2 Many business people consider the lack of an adequately educated workforce a big obstacle to growth. This boils down to three key problem areas: (i) Undefined state strategy for human capital development; (ii) Weak infrastructure and market network; and (iii) Underdeveloped market for private education. Strategy for Human Capital Development

The skills, experience and knowledge of individuals (otherwise known as human capital) create value for companies inefficiencies lie, your author talked with Mahammad Nuriyev, and the economy as a whole. In 2007 the government of the Dean of the School of Economics and Management of Azerbaijan spent about 2.7% of the GDP on education, Khazar University. Professor Nuriyev emphasized the role 3 which is comparable to the level of developed countries . of selection, forecasting and private enterprise in facilitating The Ministries of Education and Labor work on implementing improvements in the quality of education. programs for improving vocational education and training. In the Global Competitiveness Index Azerbaijan scores well on Selection is the fundamental tool for determining talent quality labor market efficiency, which includes pay and productivity, and identifying appropriate areas for individual development. female participation in the labor force, and labor-employer In Azerbaijan this process is dysfunctional resulting in the relations. pipeline effect, whereby the number of graduates corresponds to the number enrolled. A more appropriate approach would The downside includes poor quality of math and science be to concentrate scarce resources on those who can reach education, management education, and enrollment in maximum potential in a given area. In other words, what is secondary and tertiary education. The legal framework the point of spending public money on educating a linguist for and lack of strategic priorities pose significant challenges five years if this person is never going to create value for the for a breakthrough in this area. To understand where the economy by becoming one? This is not to say that the goal is

1 ETF Country Plan, Azerbaijan, 2009 2 Global Competitiveness Index 3 State Statistical Committee of Azerbaijan

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to establish an elitist system. People should be educated to the degree and in the field where they demonstrate maximum aptitude. To do this in Azerbaijan the selection process should occur on a continual basis in the form of tests and interviews.

School quotas are established by the Ministry of Education and prescribe the maximum number of students that can be admitted to a given program. In theory quotas are based on forecasts, signaling priority areas for economic development. For instance, if in the next ten years the government wanted to create an IT powerhouse in Azerbaijan, it would need to start training computer specialists today. Forecasting is essential to develop the right competencies to maximize value added. But in reality state universities compete for quotas, creating distortions in the labor market. That is probably why over 43% of university graduates major in education as opposed to finance or engineering4.

Without a functional signaling mechanism the need for information among young adults and their parents needs to be met. Parents who grew up in the Soviet Union may not be well-positioned to advise their children on the choice of profession in a market economy. Preferred study programs rarely reflect a student’s future career path. A good method to fix this would be to create awareness among youth and parents. Another solution is to restore the value and credibility of education by promoting an entrepreneurial model.

Transfers from one university to another have been made difficult in Azerbaijan. This creates complications for those who want to change focus in the first or second year of study. For the same reason students cannot transition to programs commensurate with their level of commitment and aptitude (from difficult to easy schools). This kills what would be healthy competition among schools for the best students. As a result the market cannot accurately establish talent quality. No differentiation among with the investment made, undermining an individual’s work schools reduces the alternatives of employers in terms of hiring ethic. The employee is forced to learn new skills more suitable decisions and leads to conformity in compensation. Diplomas for the job market. The system of 107 vocational and 60 cease to serve as a guarantee for quality. specialized schools mostly dates back to the Soviet times. Enrollment rates are very low (in 2007 approximately 80,000 Similar problems afflict institutions providing vocational and students in vocational and specialized secondary schools specialized secondary education. The government has adopted versus 1.5 million students in general education secondary a program for developing vocational education in 2008- schools) but the system offers as many as 300 areas of 2012 with a focus on strengthening infrastructure5. Beyond specialization, despite a limited resource base and demand resources, this type of education suffers from reputational for a broader skill set. problems. It is perceived to be low status and poor quality. Here the rupture with the private sector is particularly acute. Businesses are not involved in defining appropriate skills sets. Infrastructure and Market Moreover most positions advertised, even for secretarial and support personnel, require higher education. Network

There is often no link between the type of training received In transitioning to a market economy Azerbaijan, like other and the future field of employment (no clearly defined career countries in the former Soviet Union, lost most of its educational paths). Without application the acquired skills vanish along resource base. The economic problems that were relevant

4 State Statistical Committee of Azerbaijan 5 ETF Country Plan, Azerbaijan, 2009

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in focus

then are no longer relevant today. This is compounded by Mirzoyev plans to open another three restaurants, growing his the fact that Azerbaijan speaks its own language and cannot workforce by nearly 80%. All the new hires will have access to easily borrow literature from other countries. Entrepreneurial training and development programs. schools like Khazar University switched to English as the official language of study, adapting American and European Finally the education system falls short of preparing a programs to local requirements. For many other schools consistently high quality cadre of teachers. Diminishing outdated libraries and curriculums are still an area of concern, capacity leads to a patchy supply of qualified labor and slows not to mention physical infrastructure, such as classroom the development of human capital overall. Compensation conditions and computer equipment. plays an important role in this process. It is clear that money is not in the top five reasons for becoming a teacher anywhere A more intangible component of infrastructure in education is in the world. However the concept of reservation wage tells the network with parents, businesses and organizations. This us that pay should meet a minimal threshold to ensure network is essential in establishing the link between education adequate performance. Teaching salaries currently stand at and employment. The employability of graduates should be about 67% of the average wage in Azerbaijan (equivalent to among key criteria for evaluating the quality of an academic approximately 216 AZN per month)7. Low pay in education institution. It is meaningless to churn out students with any has significant repercussions on the social and economic type of degree if this cannot be translated into specific job development of the country. It has the power to discredit an opportunities linked to the area of study. Research shows entire system. that today the majority of people seek and find employment through friends and relatives6 often in areas unrelated to their education and training. It is not surprising that such candidates Competitive Market for do not live up to the expectations of their employers. Education A good example of a company with transparent hiring policies, which advertises to candidates in public areas frequented by Entrepreneurial problem-solving has enabled individuals youth, is McDonald’s. This business is an incredible machine and organizations to reinvent industries and develop new that runs on manuals of routines and maintains its own business models. That is why in a system riddled with farm for agricultural produce. McDonald’s employs close to problems it is not unusual to find a part that can operate 540 people and processes 500 job applications per month. unscathed. A pioneer of private education in Azerbaijan Turnover among line employees reaches 25-28% but is close Khazar University has adopted the American credit- to zero among managers. Maksud Mirzoyev, the General based system. This allows it to practice selection at every Manager, is not one to complain but he admits that there stage until the students develop the appropriate set and are more applications than qualified candidates. Thanks to level of skills. The school emphasizes employability and companies like this Azerbaijan ranks well on the extent of staff attracts companies and faculty that can help them with job training in the Global Competitiveness Index. By 2010 Mr. placements for graduates. Faculty comprises people with

Note: Excluding mining with 86.2% of value added, only 1.1% of employment and a 391.8% wage level. Data Source: State Statistical Committee of Azerbaijan

6 Study on Employment and Further Paths of Youths Graduating from Vocational and Technical Schools in Azerbaijan 7 State Statistical Committee of Azerbaijan

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international degrees and business experience. Most have full-time jobs and consider teaching a prestigious hobby. A new teaching class is formed to support the state’s strategy for human capital development.

As most private initiatives go, none is without difficulties of its own in Azerbaijan. For private universities this comes in the form of a value added tax. State universities, which receive about half of the funding from the state budget and half from tuition fees8, are not required to pay this tax. Yet it is clear that a competitive market creates the much-needed balance of supply and demand. In education it builds the link between hypothetical student profiles and what the market requires, defining real not imaginary career paths. Competition creates a focus on quality and pushes schools to develop innovative solutions, form partnerships with foreign schools, and expand their knowledge base. quality in education from resurfacing. Lack of a properly trained workforce has a negative impact on economic growth. There is no hard data available on the level of private Azerbaijan should establish the strategic direction it is moving sector spending on education and training. Multinationals in, be it manufacturing or IT, and develop the human capital to in Azerbaijan provide similar opportunities for employee support this movement. Some of the key measures include: development as in other countries. Mid- and senior-level managers are sometimes given the possibility to attend • Determine the developmental priorities of the state and trainings abroad. This is a good way to motivate employees communicate them through appropriate legal frameworks and improve the work ethic. Local companies outsource staff and policy decisions; training to providers, such as Allianz Group, which delivers HR and business courses. External training alternatives (even • Facilitate the evolution of the market for private education, for basic skills such as language and computer knowledge) encouraging competition among schools to improve quality are still fairly limited and constricted by the lack of qualified and build networks with parents and businesses; trainers. The signs are that the market will continue to grow as individuals seek to improve their qualifications. • Revise the legal framework to improve candidate selection and the level of fit between individual aptitude, degree of The development of management education as demonstrated program difficulty and optimal career path; by the proliferation of MBA programs is a priority area for the government. Projects such as the Azerbaijan Diplomatic • Create a stronger link between study programs and em­ Academy (ADA), which promises an impressive campus in ployment opportunities to avoid unnecessary expenditure on a the near future and already has world class facilities, are no superfluous number of graduates in areas of low value added; doubt beneficial. However elite education does not solve the problems of an entire economy. ADA may help to create a • Allow the private sector to define relevant skill sets given new class of diplomats that will contribute to a good image the state’s developmental priorities through surveys and of the country abroad. This will not prevent the problem of flexible curriculums.

8 http://www.britishcouncil.org/eumd-information-background-azerbaijan.htm

Address: Akademik Hasan Aliyev 63, Baku AZ1110, Azerbaijan. Tel: 994 (12) 4654776 / 4656787 / 4659710 Fax: 994 (12) 5643761 Email: offi[email protected] Web: www.acecaspian.com

• Air, Rail, Sea & Road freight forwarding • Personal Effects Removals & Relocations • Project Logistics & Module Movements • Apartment & Office Relocations • Air/Sea Charters & LCL/LTL Services • Live Animals Transportation • Dangerous Goods Management • Warehousing, Distribution & Customs Brokerage in focus

Expert Opinion: Azerbaijan’s New Customs Code

organization that continues to rely on paper documents is outdated By Brian O’Shea, and a bottleneck to flow of legitimate trade. Levels of trade have Legal Advisor, also greatly increased worldwide – Azerbaijan’s imports alone USAID TIRSP project have increased by over 600% from 1997, as measured by value. Customs organizations worldwide have understood that they must develop new strategies to cope with such steadily-increasing trade volumes using their limited manpower and resources.

In addition, since the adoption of the current Code, Azerbaijan How much customs duty has applied to join the World Trade Organization (WTO) (1997); signed Partnership and Cooperation Agreements with must I pay? EU member countries (1997); and become a member of the World Customs Organization (WCO) (1999). Commitments to To an importer, the answer to this question may be the difference these organizations require Azerbaijan to bring its trade regime between a profit and a loss. And the sooner the importer can – including its customs law – into full conformity with the rules get a reliable answer to that question, the better positioned he of the international trading system. will be to calculate his costs, negotiate prices with his suppliers and customers, and market his goods. And, finally, as a result of the attack on the World Trade Center on September 11, 2001, all countries now recognize that new An importer might research the customs tariff laws and customs procedures are required to prevent international trade regulations, or he might consult with a customs broker or other from being used as an instrument of terrorism. expert to estimate his duty liability. But, there will always be doubt because Customs authorities are by law normally empowered to make the final decision. And, this decision is traditionally made What is New? by Customs only after the goods have arrived. The general goal of the new Customs Code is to provide Azerbaijani importers may soon have a solution to this problem. Azerbaijan Customs with a solid legal foundation for A new Customs Code, which is now under consideration by the government of Azerbaijan, will provide importers with a right to New Customs Code - Some Key Changes obtain a “binding ruling” from Customs before the goods are • Electronic Processing shipped to Azerbaijan. These “binding rulings” are just one of o Primary method of communication with Customs a number of revised or new provisions designed to provide the will be electronic data processing Azerbaijan customs administration with the necessary legal • Security and Safety basis for modern customs processes based on international o Airlines and other carriers will be required to trade facilitation and security standards. Comprehensive in submit consignment data to Customs prior to scope, the draft Customs Code contains over 400 articles their arrival to Azerbaijan covering all aspects of import, export and transit processing. o Customs shall base its controls on principles of risk management and assessment Why a new Customs Code? • Simplification of Customs Procedures o “Authorized Economic Operators” will be subject Customs now operates under a code that was adopted in 1997. to reduced controls and allowed use of simplified Since that time, the international trade environment has evolved customs procedures and changed, in some ways that could not be anticipated • WTO Transparency/Fair Process when the current law was written. Customs requires new legal o Traders may obtain “binding rulings” from authority to respond to these challenges. Customs on request For example, information technology has increasingly become o Traders can choose to appeal customs decisions the primary medium of exchange of trade data; a Customs to a higher Customs authority or directly to a court

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development of a modern customs administration. Draft Customs Code Foremost among these changes is the adoption of electronic Binding Rulings messaging as the primary means of communication with Customs. The new Code establishes a general principle that all exchanges of information between Customs and businesses • Can be requested by “any interested person” shall be based on electronic data processing methods, except (e.g., the importer, exporter, buyer of the goods) for cases otherwise specified by the Customs Committee • Issued in advance of the transaction concerned [Article 40]. Since 2002, customs agents have been able to • Covers question about tariff classification, submit declarations electronically to the Customs system but customs valuation, country of origin of goods, or a paper version with a signature is still required by Customs amount of customs payments Code. Under the new Customs Code, Customs will be able • Legally binding on both Customs and the recipient to accept directly electronic import and export declarations, of the ruling as well as the electronic transmission of any supporting documents that may be required for clearance (e.g., invoices, • Valid for three years, unless revoked, cancelled certificates of origin, etc.). [Article 145] or modified

The draft Code also contains provisions to enable Customs to control. This is in line with accepted international best practices, respond more effectively to the threats to safety and national which recognizes that with limited resources, Customs must security presented by global terrorism. In particular, there are use a systematic risk-based approach to ensure that the provisions to implement World Customs Organization’s “SAFE focus of control efforts is on those transactions which pose Framework of Standards”. These provisions will require the airlines, the greatest threats, and allow low risk transactions to pass trucks, and ocean vessels that bring goods to Azerbaijan to notify with limited controls. [Articles 371 to 376] Customs before arrival of the goods, in order to allow Customs the possibility to assess the incoming shipments for safety and In that regard, the new Code provides for the possibility of security risks. Like import and export declarations, carriers will be reduced Customs controls on “Authorized Economic Operators” generally required to submit these advance notifications – called (AEO). These are businesses who have demonstrated a high “brief import declarations” – electronically. [Articles 122 to 125] level of reliability - in terms of compliance with customs rules, control systems and financial solvency. If Customs grants The Code establishes that principles of risk management and their application for AEO status, these “low-risk” businesses analysis, including the use of post-clearance audit for control will generally be allowed to use simplified procedures (such of imported goods, shall be used as the basis for customs as simplified declaration data requirements), and permitted to in focus

clear their goods under reduced customs controls [Articles 32 Administrative Appeals. An administrative appeal procedure to 35]. provides traders with access to an independent authority within the Customs administration who can review and correct, if necessary, Transparency and Accountability decisions (or omissions) that are made by local Customs officers. The draft Customs Code would allow any “interested person” Azerbaijan’s WTO membership application has had an important to appeal decisions to a higher authority within the Customs impact on the development of the new Customs Code. There organization. In other countries, such as the United States are new provisions in the draft Customs Code to conform where administrative appeal process is heavily used, importers Azerbaijan’s regime to WTO rules on customs valuation, typically make such appeals against the tariff classification protection of intellectual property rights, and rules of origin. or customs valuation or amount of duty or fees that a local The new Customs Code will also incorporate WTO rules on Customs office charges on an import shipment. Under the draft transparency and accountability. These include the “binding Customs Code, these appeals generally must be decided by rulings” program, mentioned at the start of this article, and rules Customs, in writing, within 30 days. [Articles 55 to 58] for administrative appeals. The general advantage of an administrative appeal is that disputes can be resolved more quickly, and at a lower cost, than through a Binding Rulings formal judicial proceeding. Of course, the person who makes the administrative appeal always has the right to go to court. A binding ruling is a Customs official written decision that is issued on request of an importer or exporter before the goods arrive to the customs office. Binding rulings programs are well-known and Prognosis heavily used in international practice. The United States customs administration, for example, initiated its binding rulings program The State Customs Committee has submitted the draft Customs more than 50 years ago, and now issues thousands of rulings to Code to the Cabinet of Ministers for review and approval by the importers and exporter each year. government. It is expected that the draft Customs Code will be presented to Parliament for consideration in 2009 and, possibly, Rulings issued by Customs are “binding” on both the trader enter into force at the beginning of 2010. and Customs. That is, a trader that receives such a ruling must present it to Customs at the local office where he declares his Many of the provisions of the Customs Code are not self-executing; goods for export or import, and that local Customs office must that is, the Code sets out general principles that must be implemented apply the decision to the imported or exported goods, if they are by secondary legal acts developed by the government or by the satisfied that the goods are the same as those described in the Customs Committee. Thus, much of the detail regarding the new ruling letter. [Article 54] procedures will depend on the work of these bodies.

The obvious benefit to an importer who obtains such a legally- The administrative rulings and appeals program mandated by binding ruling is that he will know with certainty how much duty the new law is intended to provide greater predictability and and tax he will be required to pay before he ships his goods. But transparency in customs processing, and to reduce transaction there are also advantages for Customs. Because a transaction costs. The utility of such programs to the trade is proven by covered by a ruling has already been examined before the their heavy use in countries around the world. Importers and goods arrive to Azerbaijan, Customs can focus their resources exporters in Azerbaijan should thus be similarly encouraged to on clearing other imports involving unknown or higher risks. investigate and take advantage of the new rulings and appeals procedure, once adopted. Moreover, a rulings program can promote greater consistency and transparency in Customs decision-making. Although a Mr. O’Shea is a customs legal advisor working for Economic ruling issued to one importer is not legally binding on another, Integration Forum Inc. on the USAID TIRSP project providing it does represent Customs official decision on the transaction assistance to the Government of Azerbaijan to accelerate its WTO described in the ruling, at least as of the date the ruling was accession process. Mr. O’Shea has worked as a customs and issued. Customs authorities thus would normally be expected to trade lawyer and advisor for over 20 years on various customs apply the decision to other import transactions where the goods modernization and reform projects in South Africa, Europe, or other relevant transaction details are identical. Where rulings Central Asia and the Middle East. Prior to this, Mr. O’Shea was are published – as they are in the United States and EU via special trade counsel to an international law firm in Washington, a searchable database, subject to protection of the importer’s D.C., and served for three years as an attorney with the U.S. confidential information – other importers or exporters of Customs Service. He holds a Bachelor of Arts degree from the identical goods are able to predict with greater confidence how State University of New York at Buffalo, and a Juris Doctorate from Customs might treat their transactions. Vanderbilt University. He is a licensed U.S. Customs broker.

This article is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this article are the sole responsibility of the USAID Trade and Investment Reform Support Program in Azer- baijan and do not necessarily reflect the views of USAID or the United States Government.

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Customer Service Part III: The Flow of Information.

By Jim Dillahunty, International Speaker and Consultant in the field of Leadership Development

This is Part III in the series of articles on customer service. In Part I, we identified customer service as an interconnected system of operational units. In Part II we discussed properly identifying, and placing an economic value on customers. This article presents the concepts of information and messaging that flows:

a. From customers to the organization b. From the organization to its customers c. Internally within the organization Gathering Information From Customers reason. I asked the conductor how they were distributing the survey forms, and he replied, “We are handing them out to Gathering insightful and useful information from your all the passengers.” customers is an art. It is easy to survey customers, but in many instances customer surveys do not provide useful information Although on the surface it might seem like a good idea to to an organization. Customers are very good at responding to survey current customers, a more useful understanding surveys, telling organizations of their desires, but little about might be gained by also including prospective passengers. how those desires and interests might be put to use in product Rudimentary analysis would divide a market into three design and improvement. In some respects, surveying your major segments; Customers, Prospects, Non-customers. customers is similar to asking your teenagers at home, “What In this analysis, it is easy to see that limiting the survey would you want to make your family life a more delightful and to only customers neglects a substantial portion of the rewarding experience?” Is there any doubt that the responses market, namely your prospects. In the railroad's survey, the you would receive would be something like, “more video information gained could only serve to increase ridership games, less homework, and a new cell phone!” The same among its current customer base. can be said for customers; they will eagerly provide you with superficial information. The challenge for organizations is One very useful method that the organization may find useful to understand how customers are using their products and is to have its managers and executives spend time with services and what jobs they are trying to accomplish when customers to better understand their needs and interests and they select your brand. what motivates customers to select your product or service over that of a competitor. One CEO I interviewed in the I was riding a train in Southern California not so long ago United States who operates an international tour company when the conductor handed me a survey that was designed goes on at least one tour a year with his firm’s customers. to understand the needs and interests of its riders so that From that experience, the CEO is able to gain first-hand they could boost ridership. There are only two ways to information about how customers experience his company's increase ridership; have the people who already ride the services. If you are a senior executive, who decides to train travel more often, and appeal to the interests of people spend time among the customers it is very important to the who would ride the train but could not for some unknown validity and quality of the information you gather, that you

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do not distinguish yourself from those with whom you are your product or service. sharing the experience. That is to say, you should dress like your customers and participate in all the experiences that you are asking your customers to do. Executives who Internal Information flow want to understand the customer experience should leave behind their tailor-made suits, private cars, and entourage of Information flow is more than a two-way street back and secretaries and assistants. If you look and act different from forth between your organization and your customers. A the customers, they will treat you accordingly and you will critical avenue of information flow can be observed in how likely not gain any information about the true nature of their well information flows within your organization. Ask yourself experiences. “does critical information flow from its collection point to the individuals who can most readily use and act upon it?”

Sending Information to I had the experience of walking into a major department store with a store discount coupon in my hand, which I had Customers just clipped, from the morning newspaper. I approached the sales clerk and told her what I wanted; she found the item and The normal mechanisms organizations use to deliver brought it to the cash register. I presented my 25% discount information to customers comes in the forms of the coupon and my credit card. She looked at the coupon and then advertising and public relations campaigns. The first at me and said she did know not anything about the discount, question to ask yourself about the information that you are and she would have to call someone. It seemed like 15 minutes delivering to your customers is “is it really the truth.” It is went by as she made multiple calls throughout the store trying easy to fall victim to the clever sayings and illustrations to find someone who knew about the 25% discount published of an advertising agency in terms of how it positions your in the morning paper. Every call she made, to store managers product or service in the marketplace. Clever sayings, and other departments heads, returned the same answer; no calls to action, and marketing catch phrases should never one knew a lot about the sale. In frustrated exasperation, she substitute for, or obscure the truth. How many times have explained to me, “They never tell us anything around here.” you seen television advertisements in which the last frame From that experience, I formed the perception that the value I is a microsecond posting of fine print too small to be read by saw in the product came from its brand name, and no loyalty viewer. That is an indication the advertisement may not be was owed to the retail distributor. telling the whole truth about the product, service or offer. It does not take consumers long to either add to or take away from your brand value by their experiences in selecting Summary your product. If it does not live up to the advertisement, not only have you burned the customer, you have thrown away Understanding how information flows from your organization to future sales and the likelihood that a satisfied customer will customers, from customers to your organization, and internally provide you with referrals. within your company, presents a number of opportunities for your organization to differentiate itself from its competitors. In addition to your advertising and public relations the front- Understanding what your customers are trying to do with line personality organization; those that meet directly with your product or service is perhaps the most critical piece of your customers convey a lot of information about the nature of information an organization can ever obtain from its users. your organization. If these employees or sales representatives The information that you deliver to your customers requires are truly delighted with your company and your products that that such advertising and public relations be truthful. Your staff enthusiasm will be readily seen by customers and prospects members who directly interface with customers require not alike. only training in customer service, but access to the information that allows them to present a competent image. Your employees are living beacons that either add to, or take away from your brand value. This is especially true DR. JIM DILLAHUNTY is an international Speaker and Consultant if your employees happen to be in company uniforms. in the fields of Leadership Development, leading in Chaos, Many of us have had a bad customer experience with a and Customer Service (see www.NewParadigms.com.) Dr. uniformed employee. Not only do we go away angry at the Dillahunty has collaborated with Drs. Ken Blanchard (The One organization, but we keep a visual reminder in our memory Minute Manager) and Stephen Covey (The Seven Habits…) in of the uniform and logo of that organization. It should be two books; Blueprints for Success, and Roadmaps to Success. understood that front-line employees, especially those Jim received his BS and his MS in Materials Engineering that wear the uniform or insignia of the company, should at the University of Massachusetts; he earned his MBA receive adequate training in how to properly interface at the University of Southern California and his Doctorate with customers. That training should include dealing with at the University of Phoenix in the field of Organizational customers who may be upset, or had a bad experience with Leadership.

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Interview: Alinaghi Asghari, Chairman, AmCham Tax & Customs Committee We need structured relations with the government and specific Alinaghi Asghari channels of communication with related organizations to achieve CPA Director, Member of The Board efficient solutions to the questions and problems which our WEIR Standard Oilfield Services members are facing. We still have not reached such a position. Limited In practice one feels some degree of distance with the law books. The knowledge of our members of their rights and their eagerness for the betterment of business environment is How do you see the role and function of the AmCham Tax essential for a better future. and Customs Committee? The Committee plays a very constructive role for the benefit of What, if any impact will the new customs code have on its members. It proactively addresses both existing and new member companies? issues by maintaining a dialog with the related organizations, Certainly the new code will create a more transparent and clear commenting on draft legislation and organizing forums for basis for customs formalities in Azerbaijan. Depending on the discussions of ‘hot topics’. TCC continues to keep in close level of its implementation it will result in higher predictability contact with all members, non-members and government and lower cost of customs processing for both importers and officials through regular meetings and attendance of various exporters. forums and conferences, as well as increasing awareness of the membership on tax and customs issues and tendencies. The possibility of administrative appeal to an independent authority within the Customs administration under the new code What progress and achievements of the committee is a great change to be noted. This should result in resolving can you highlight? How would you further improve its the disputes more quickly and at lower cost. Those disputes effectiveness? might be the tariff classification, customs valuation, amount of Although we are not an executive unit, we play an effective duties or fees that a local Customs office charges on an import role as a link between our members and related administrative shipment. and ministerial organizations. As our main achievement over the years I believe we can note the high level of trust of the What are your expert recommendations to the members in TCC and at the same time the importance of TCC government of Azerbaijan from the private sector in to other governmental and non-governmental organizations. the area of simplifying and improving tax and customs procedures? Active participation of members in the committee meetings The value of any law is measured by its use in practice. I and sharing their experiences in the business environment believe the one window practice has had a positive impact can lead to higher performance of the committee. Regular on relations with the tax administration and hope it will be the meetings of the committee and keeping the members updated same with the customs administration. on regulations will further improve its efficiency. I believe it would be beneficial if both tax and customs Which areas would you like the committee to focus on in administrations would create an expert public relations future? department which traders could access easily without going Beside encouraging the members' active participation in the through ministerial formalities, to discuss their problems and meetings, the committee should continue to further increase possibly get prompt guidance in handling problems they are the knowledge of members on regulations. facing.

Expanding its relations with related governmental organizations Alinaghi Asghari was born on February 14, 1971. He has lived is another area of concern. This needs the practical support of in Azerbaijan since 2000. He is married and has a daughter. the board of directors of AMCHAM to assist the committees He has Master's degrees in Finance and Accounting, Certified in creating a strong presence and relations with those Public Accountant (CPA) from the USA. organizations. He has over 17 years of experience in the areas of Audit, Please describe specific problems you have encountered System Ananlysis and Design, Finance and Accounting. He is in the area of tax and customs. Executive Director in production, trade and service sections.

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Azerbaijan Introduces Preferential Regime for Oil and Gas Industry should be noted that companies with foreign investment can Emil Garayev also qualify as contractors. Although the rationale for restricting Narmin Mirzazade the ability of foreign legal entities to qualify as contractors is Deloitte Azerbaijan not clear, presumably the restriction is designed to increase the local content in the industry. Taxation regime The President of Azerbaijan approved the Law "On application of a special economic regime to export-oriented oil and gas The new law provides for a special tax regime for qualified operations" on February 2, 2009. The law, which became taxpayers. Contractors can choose to pay either profit tax effective on April 17, 2009, will apply for 15 years and may be in accordance with the Tax Code or a withholding tax in extended for a longer period by the Parliament. the amount of 5% of gross revenue (i.e. without the right to deduction costs). This option enables contractors to choose The law sets a precedent for the successful cooperation between the two methods based on the expected profitability of businesses and the government in pursuit of a common of future projects. objective. It is especially commendable to note that the government demonstrated genuine interest in the initiative put Nevertheless, the withholding tax option may be more forward by private companies and actively involved the latter attractive to contractors because paying profit tax under the in agreeing to the framework of the new law. The initiative Tax Code includes complex compliance obligations. Under for creating a special economic regime to further advance the Tax Code, a taxpayer must maintain accurate accounting the appeal of Azerbaijan’s oil and gas infrastructure for of income and expenses, and the treatment of deductible use in the greater Caspian region came from private oil and expenses for profit tax purposes has traditionally been an area gas companies. It became obvious that there is a niche for of disagreement between the tax authorities and taxpayers. Azerbaijan-based shipyards and fabricators of equipment for the oil and gas industry in neighboring Caspian markets. The Depending on the country of incorporation and citizenship, the boom in Azerbaijan’s oil and gas industry during the last decade law differentiates between local and foreign subcontractors. has also enhanced the specialist capacity of the country. According to the law, local subcontractor corporations are subject to profit tax under the Tax Code, whereas local The law is designed to create simplified fiscal, customs, individual subcontractors can pay either personal income currency and employment regulations for contractors to serve tax or a simplified tax under the Tax Code. Unlike local oil and gas projects performed outside Azerbaijan. Therefore, subcontractors, however, foreign subcontractors that are its application to existing projects within Azerbaijan, including corporations can only pay the 5% withholding tax. Production Sharing Agreements (PSA) and Host Government Agreements (HGA), is specifically prohibited. The law also protects contractors against future increases in the profit tax rate. The new law defines export-oriented oil and gas activities as any supply of work, services and goods in the territory of Dividend and interest payments made by contractors and Azerbaijan in connection with oil and gas projects undertaken foreign subcontractors and the repatriation of net profits by outside Azerbaijan. Oil and gas operations include exploration, permanent establishments of foreign subcontractors to their valuation, production, stabilization, preparation, refining, head offices are not subject to tax. In addition, contractors are storage, loading, transportation, and the sale and purchase of exempt from asset and land taxes. Export of goods, services crude oil and natural gas. and works by contractors are subject to VAT at 0%.

Contractors and subcontractors are the main parties intended Contractors are also entitled to offset input VAT incurred on to benefit from preferential treatment under the law. The law the purchase of goods and services related to export-oriented sets certain requirements to qualify as a contractor, which oil and gas projects against other tax liabilities, with any include being an Azerbaijan legal entity and having existing balance of VAT able to be reclaimed from the State Budget. production capacity, labor force, technology and finance. It The law guarantees a full refund of VAT within 20 days after

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filing an application without the authorities having to conduct which require a work permit before starting employment in a full-scale audit. Azerbaijan.

It should be noted that foreign individuals will be subject to Azerbaijan personal income tax only on income from direct Project approval employment in Azerbaijan. This effectively means that an expatriate who becomes a tax resident in Azerbaijan will A project certificate must be obtained for each contract to not be paying Azerbaijan personal income tax on his/her carry out export-oriented oil and gas project -- the certificate worldwide income. serves as a basis for qualifying for benefits set out in the law. Foreign subcontractors without a permanent establishment in It is also unclear why the legislator has limited the possibility Azerbaijan are not eligible for a project certificate but they can of paying simplified tax to Azerbaijan citizens. Unfortunately, enjoy the preferential treatment through their customers who the law does not exempt expatriates from making mandatory are qualified as contractors under the law. social insurance contributions in Azerbaijan, which could reduce the attractiveness of the new regime to foreign Several steps are necessary to obtain a project certificate: the contractors and their foreign employees. contractor or subcontractor must file an application and supporting documents with the relevant executive authority (which is yet to be determined); the executive authority appoints an expert within Customs regime two days of receipt of the application to issue an expert opinion which is issued within 15 days; and based on a positive expert The law provides an exemption from VAT and customs duties opinion, the certificate is issued within three days. on the import and export of items required for export-oriented oil and gas operations. Contractors and subcontractors pay The format of the application and the list of required documents a customs processing fee of AZN 275 for each customs have not yet been determined by the authorities, and it is likely declaration, irrespective of the value of goods. According to that a presidential decree will be issued to clarify these issues the law, the transfer of imported goods between the projects and state which government authorities will be responsible for related to PSAs and HGAs and projects governed by the law implementing the provisions of the new regime. is exempt from VAT and customs duties. While the new law represents an important policy measure of the Azerbaijan government calling for better utilization of Currency control the country’s oil and gas infrastructure in uneasy economic times, its success depends on how easy and transparent Under the special economic regime, contractors and administration of the regime will be in practice. It is important subcontractors can open and operate bank accounts that the implementation rules are objective and grant minimal in Azerbaijan, but they must notify the Central Bank of subjective discretion to government officials. Azerbaijan and the relevant executive authority, which is likely to be the Ministry of Taxes of Azerbaijan, of any offshore Although it would be an overstatement to view the law as a bank accounts. Additionally, contractors and subcontractors radical reform to the entire oil and gas industry in Azerbaijan, can freely repatriate profits from Azerbaijan after payment it will definitely will be of benefit to certain contractors, will of applicable taxes. They can also pay their expatriate improve the country’s economic profile in the face of increasing employees in Azerbaijan in manats and in foreign currency competition for foreign investment and help to affirm Azerbaijan outside of Azerbaijan. as a regional hub for oil and gas investment.

Narmin Mirzazade graduated from Baku State University, Employment issues successfully majoring in Law. She received her Master’s degree in Civil and Commercial Law from the same University. In 2006 According to the law, at least 80% of contractors' and she joined Deloitte in Azerbaijan. Narmin has more than 3 subcontractors' employees must be Azerbaijan citizens if years of experience in advising foreign and local companies on the project lasts for more than six months. Exceptions are different tax and legal issues. made where no local labor force is available, if the training Emil Garayev possesses Bachelor's and Master's degrees of a local labor force would take more than six months or in Law from Baku State University. He has been working in the cost of training of local specialists is 20% percent higher the Tax and Legal Department of Deloitte Azerbaijan for the than the cost of employing foreign specialists. Employment last 3 years. His work experience concentrates on advising of foreign citizens is subject to existing labor migration rules, local and foreign investors on various tax and legal matters.

Copyright © 2009, Deloitte Touche Tohmatsu. All rights reserved.

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New Trends in Residential & Commercial Development of Azerbaijan in 2000 and other subsequent amendments to By Natik Mamedov, Azerbaijani law. Senior Associate Baker & McKenzie, Baku (i) Construction Contracts 3

An individual wishing to “purchase” a unit in a proposed or partially built residential complex (not yet state-commissioned) would typically be required to “order” the construction of the unit by entering into a construction contract with a Introduction developer. The purchase price would generally be paid in several installments. A “unit owner” was not responsible Following the construction boom earlier this decade, the for the contractor’s obligations to third parties. The risk of Azerbaijani real estate market has undergone substantial non-completion, however, was always a major concern, change, in both the residential and commercial sectors.1 particularly where the interval between the final installment of The global financial meltdown, however, has significantly the purchase price and completion exceeded six months. impacted a number of planned and on-going developments here. While construction has slowed in recent months – for (ii) Participation in Residential Cooperatives 4 a number of reasons, including the unavailability of credit – interest remains high among major local developers and With the Civil Code’s introduction of cooperative ownership, project negotiations continue. residential developers have been actively using residential cooperatives as a way to pre-sell unfinished residential units to This article discusses the Azerbaijani law issues associated end-users. Under Azerbaijani law, a cooperative is a voluntary with recent market developments and legislative initiatives union of at least five individuals or legal entities created for designed to bolster market development and promote real the purpose of satisfying the material and other needs (such estate investment in Azerbaijan. as housing) of their participants. Members of a cooperative make contributions to a “share fund” to pay construction and other costs. While the cooperative’s members, by law, Residential Market are in a position to control the construction process (as they may retain a contractor or do construction themselves), Residential development has consistently led the real estate in practice, however, this has only been available to a few market in Azerbaijan for more than a decade. According “founding” members who also participate, generally on an to the State Statistics Committee, nearly 200 construction informal basis, in the management of the cooperative. While companies have been registered in Azerbaijan, with more “regular” cooperative members are not actively involved in the than half of them involved in residential development.2 construction of residential units, they are, perhaps unfairly, During that time, residential development may be divided into still fully liable for the co-op’s obligations, including tax three periods: (1) the pre-boom period from the late 1990s arrearages. through 2003; (2) the construction boom from 2003 through 2007; and (3) the post-boom period from 2007 to the present. (iii) Purchase of Residential Certificates 5 Each period is characterized by the use of different types of contracts for residential development. Each type of contract or An amendment to the Civil Code in 2004 introduced “residential “construction mode” (or a combination thereof) appeared due certificates” as a form of property development financing. A to commercial factors and financing requirements as well as residential certificate is a documentary security representing legal developments such as the enactment of the Civil Code a holder’s right to redeem the certificate for title to a residential

1According to the data released by the Property Market Participants (an Azerbaijani public association), the construction market in 2008 ex- panded by 6%, resulting in the development of a total 1.35 million sq. m. 2With such major developers as the Akkord Group of Companies, Azinko Holding, Altes Construction (Altes Plaza in Yasamal District and Altes Park in Nasimi District), Azimport LLC (AgSaray complex in Nasimi District), Bakmonolit LLC (Eurohouse complex in Nasimi District), Siti Developer LLC (Orient City complex in Nasimi District), Incom LLC (Roseville complex in Narimanov District), and Araz Cooperative (Sun City complex in Yasamal District). 3Construction contract-based development was most typical during the pre-boom period.

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unit developed with financing obtained through the sale of residential certificates. Residential certificates, however, are not yet commonly used in Azerbaijan, mostly due to the lack of a ready market and the lack of specific rules regulating their issuance, use, and redemption.6

Commercial Market

With the slowdown in the residential market, the commercial market has expanded to include the development of elite hotels managed by name brand operators,7 warehousing facilities, shopping malls,8 lately fashionable multi- and mixed-use complexes and towers,9 (v) infrastructure-related construction (including roads, transport, water supply, sewers, power infrastructure, and telecommunications),10 and resort and entertainment development.11 While the commercial market is developing, its overall success will ultimately depend not only on the country’s oil and gas revenues but also on how Azerbaijani law develops to better facilitate development.

Business Licenses

Azerbaijani law requires separate licenses for (i) construction (except residential buildings and suburban buildings up to 12 meters in height), (ii) engineering works, and (iii) preparation of construction project documents for Class One and Class Two buildings and structures. As the commercial market matures, it Zoning is becoming subject to more stringent regulation and licensing. Recently, the licensing rules were amended to impose Zoning is a regulatory “division” of urban areas into different minimum qualification requirements for each license. To be zones such as recreational, residential, agricultural, commercial, eligible for a construction license, for instance, an applicant industrial, mixed, and special uses (e.g., power plants, sport must demonstrate that it has (i) at least five construction complexes, airports, and shopping malls) according to a specialists, each with a minimum of three years experience; specifically designated land use to preserve the “character” (ii) the necessary technical equipment, including construction of a given community. Each zone is regulated as to density equipment, vehicles, technical and security facilities, movable (from low-density single-family homes to high-density high-rise power generators and stations, and control measurement apartment buildings), height, location, size, and type of buildings devices; (iii) a certificate on the technical compliance of its permitted. measuring instruments; and (iv) third party liability insurance. While the introduction of the qualification requirements is a While Azerbaijani law provides generally for zoning, no particular positive development, more detailed regulation is needed to zoning requirements have yet been established. This will ensure that the quality of construction conforms to international hopefully change with the adoption of the Construction Code.12 standards. That said, however, land may only be developed for the purpose

4Cooperative-based development was typical during the boom period. 5Cooperative-based and residential certificate-based development is typical during the post-boom period (issued by a number of construction companies, including Azinko Holding, Azimport LLC and Incom LLC). 6In most jurisdictions where residential certificates are used, special licensing, registration, and disclosure requirements exist. 7These include (1) Full Moon Rising and Crescent Tower (Full Moon Bay Hotel and the Caspian Plus, including the Crescent Place Hotel, on the Baku Bay area on opposite extremes of the same bay acting as gateway markers), (2) Hilton Hotel being developed by ISR Holding on the site of the old Azerbaijan Hotel, (3) Marriott being developed by Pasha Inshaat on the site of the old Absheron Hotel, and (4) Four Seasons Hotel being developed by Pasha Inshaat across from the Heydar Aliyev Foundation. 8These include (i) the recently completed Shuvelan Park Shopping Center outside Baku and (ii) the Park Bulvar shopping mall on Nefchilar Avenue tar- geted for completion by October 2009. 9These include (i) Sky Park, a complex of four skyscrapers next to the Heydar Aliyev Sport Arena; (ii) Baku Flame Towers being developed by DIA Holding on the site of the old Moscow Hotel; (iii) the Heydar Aliyev Center on Heydar Aliyev Avenue in Baku (housing conference facilities, a library, museum, and food outlets); and (iv) Dream Island, a 300-hectare residential complex with educational, medical and recreational facilities near the airport in Baku.

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property in Azerbaijan (including state property) which issues title and other documents (in the form of extracts) certifying rights to immovable property. Nevertheless, state property (including land and other property subject to privatization) largely remains on the “books” of the previous registration authorities and, as such, is not in the register maintained by the Registration Service. With state property not completely registered, real estate development financing is less available to local developers as the legal issues arising from mandatory registration relating to the enforceability of security interests deter potential lenders.

The transfer of the land cadastre system from the State Land and Cartography Committee to the Registration Service is also necessary to enhance the ability of the Registration Service to operate efficiently as a single, unified register of immovable property.

Release of Mortgage

If undeveloped land is subject to a mortgage, any structure later developed on that land is also subject to the same mortgage by operation of law. While the application of this rule does not prevent financing of commercial development (as specified in a land allocation order. Land, in turn, may only be this only protects lenders), it hinders financing of residential allocated for a purpose that corresponds to its classification, development as the residential units that are sold or pre- i.e., land classified for agricultural or recreational use cannot be sold are not automatically released from the mortgage. In allocated for the development of a manufacturing facility. While contrast, this rule does not apply if the land is fully or partially Azerbaijani law allows for land reclassification (by Cabinet of developed as the structures (whether unfinished or not) on the Ministers resolution), no specific reclassification rules have been land are treated as separate property. To ensure the success adopted so far. of multi-use projects, Azerbaijani law should be amended to specifically provide for the partial release of mortgages A land allocation order specifies a permitted development on the for completed units sold to third parties and the removal of allocated land by stating exactly what type of building may be existing encumbrances. constructed on it – residential, office, shopping, warehousing, etc. Due to the lack of specific zoning requirements, however, land (mostly outside the City of Baku) is allocated with an allocation Property Taxation order not specifying the type of development. This leads to a potential inconsistency between the development of the land The 2001 Tax Code is the principal act governing taxation and the land’s underlying classification, i.e., where land use is in Azerbaijan, including taxation of transactions involving classified as residential, a generic reference to “any commercial property. Taxation rules differ depending on whether the purpose” in the land allocation order permits development of Tax Code, a double tax treaty, or a special tax regime under multi-use complexes with hotels and business offices. oil and gas and main export pipeline agreements (enacted as law) applies. Under the generally applicable tax regime, in a direct asset deal (i.e., where real estate, without regard Single Register of Immovable to whether it is fully developed, is transferred), capital gains (i.e., the difference between the cost of the asset, presumably Property and Land Cadastre without regard to the depreciation taken, and the proceeds from the sale) are taxed at the rate of 22 percent. The result, The Service of the State Register of Immovable Property (the however, is different in an indirect (share acquisition) deal “Registration Service”) is the single register of immovable (i.e., where a company holding the asset is acquired). A share

10These include (i) the Baku Bus Station, (ii) the Baki Soveti Subway station, and (iii) Port Baku. 11The proposed model for urban development is Seven Peaks of Azerbaijan, a multi-billion residential and resort development on Boyuk Zire (formerly Nargin) Island, a re-creation of seven famous mountains in Azerbaijan. 12A resolution of the Cabinet of Ministers dated January 8, 2009, requires the Ministry of Justice, Ministry of Emergencies, State Committee for City Construction and Architecture, State Agency for Standardization, Metrology and Patents to jointly prepare a draft Construction Code by July 2009.

26 Summer / Issue 6 member contribution

deal involving a joint stock company in which more than 50 percent of the company’s assets, directly or indirectly, consist Clean Energy Concerns of immovable property located in Azerbaijan is not subject to capital gains (profits) taxation. The transfer of a participatory To promote environment friendly development, many states and interest in a limited liability company, without regard to whether local governments are developing green building programs and such transfer is in part or in whole, is subject to capital gains practices in new construction and remodeling projects.13 As part tax. of a clean energy economy, Azerbaijan should also consider adopting and implementing green building programs to reduce Additionally, given that transactions with securities are the overall impact of residential, commercial, and infrastructure treated as financial services exempt from VAT, the sale development on health and the natural environment by of shares in a joint stock company is VAT-exempt. The efficiently using energy, water, material, and other resources, analysis for a transaction with a limited liability company and reducing waste, pollution, and environmental degradation is not straightforward. Under the Tax Code, the transfer of to create a sustainable living and working environment. As property in Azerbaijan is generally subject to VAT. While a starting point, the development of the property market in “property” under the Civil Code includes tangible and Azerbaijan should be counter-balanced with the need for a intangible assets, intangible assets, cash, and land are clean natural environment. 14 not considered “property” for VAT purposes. The Tax Code defines “intangible assets” as including intellectual property rights and any other proprietary rights recognized by law. Conclusion While the Tax Code does not specifically list a participatory interest in a limited liability company as an intangible asset, The Azerbaijani real estate market, practice and legal framework it is a proprietary right under Azerbaijani law. Additionally, continue to evolve, with increasing sophistication in terms of the Civil Code provides that all rights and claims that may products offered and legal structuring. While the market continues be transferred or pledged are intangible rights. As such, a to improve, new laws will be necessary to create a more fully participatory interest is an intangible asset, the sale of which developed property market. Even in the absence of new laws, should not be subject to VAT. This, however, is inconsistently however, the Azerbaijani real estate market presents considerable enforced in practice. opportunity.

13These programs vary from a 30% or greater improvement in energy efficiency to a net-zero energy performance or offset their energy con- sumption with on-site renewables. 14Azerbaijani President Ilham Aliyev has recently banned tree cutting in the City of Baku to release areas for residential development. member contribution

Business Leaders Join Efforts to Advance Reform through WTO

By Michael Kunz, Country Representative of Counterpart International Azerbaijan and Chief of Party for USAID’s Civil Society Project.

A growing number of business associations are joining forces to take part in Azerbaijan’s process towards membership in the World Trade Organization (WTO). Recognizing the Government of Azerbaijan’s renewed efforts to expedite WTO accession as an opportunity for the business community to engage in critical issues affecting economic reform, a coalition of business leaders and NGOs recently initiated an advocacy and public awareness campaign directed at business leaders and policy makers.

The Coalition for Increasing Awareness about the Benefits of WTO Accession, formed by the Azerbaijani Marketing Union. In response to the positive response from the business Association and Praxis, is engaging business leaders through community, talks are underway to hold a national conference a two-pronged approach: i) increasing awareness and in Baku in order to refine and strengthen the economic reform understanding of the processes of WTO accession, including agenda. required economic reforms; and ii) facilitating dialogue, and recommendations for policy reform, that sustains Azerbaijan’s Through discussions at the business forums, leaders are economic transition and creates business opportunities for building an understanding and consensus on how to help entrepreneurs. move the economic reform agenda forward vis a vis WTO. Business leaders participating in Coalition activities recognize that WTO-related reforms can significantly improve the Regional Forums Highlight business environment by reducing non-tariff and regulatory barriers, ensuring greater transparency and stability in the Opportunities & Challenges legal regime, and strengthening the rule of law. Business leaders feel they can constructively engage in policy dialogue Over 100 regional leaders are engaging in dialogue on to achieve these reforms – and that their investment can economic reform and WTO issues through a series of nation- pay off in terms of reducing the cost of doing business and wide business forums in Sumgait, Gusar, Mingechiveir, protecting their rights, as well as the rights of their investors. Zagatala, and Masally. The business forums are bringing together the private sector, government, and business associations in robust dialogue covering an introduction to Engagement in the Economic WTO, reforms and potential benefits to Azerbaijan, as well as the process and status of WTO accession. Experts with Reform Dialogue Azerbaijani and international expertise in WTO accession lead the sessions. The economic reform campaign is taking initial action with a package of policy recommendations in the areas As a result of these meetings, involvement in the advocacy of competitiveness and customs reform. To support the and public awareness campaign has grown to include leaders strengthening of Azerbaijan’s institutional base for economic of key regional enterprises and business association branches development and enforcement of WTO related laws, the from the Entrepreneurs Confederation and Entrepreneurs coalition is making recommendations on restructuring the

28 Summer / Issue 6 Ministry of Economic Development and considering issues regime. Due to the efforts of business leaders from around the such as sound public investment expenditure programs and country, the private sector is a better position to support the elimination of non-tariff barriers to trade. Government’s ambitious goal of WTO accession in the near term. The coalition’s efforts are aimed at supporting the development of world class products and services through Michael Kunz is the Country Representative for Counterpart greater transparency in the legal regime that would allow International and Chief of Party for USAID’s Civil Society businesses to constructively engage in a number of ways, Project in Azerbaijan. Mr. Kunz has over 17 years' experience including setting standards and non-trade distorting subsidies. designing and managing multi-faceted economic development For example, business forum participants identified an programs in the transitional economies of Central and Eastern opportunity to involve industry experts in setting standards Europe, Caucasus, Central and South-East Asia. During and technical requirements that promote quality in a way his career, Mr. Kunz has consulted national governments, that does not subject entrepreneurs to burdensome and multinationals, foundations, private firms and NGOs in the unjustifiable regulations. Additionally, business leaders see a design and implementation of policy and programs supporting more transparent system as a means to provide input into the a range of economic development strategies, including design and implementation of non-trade distorting subsidies foreign direct investment, agribusiness, water management (or Green Box in WTO terminology), such as regional and community development. development and environmental programs.

The coalition’s advocacy and public awareness work marks notable progress in establishing a platform for the business community to support meaningful reforms. There is now a groundswell of interest among businesses and NGOs to support the Government’s goal of WTO accession in a The Civil Society Project is a United States Agency manner that helps to maintain a high level of commitment to for International Development (USAID) initiative, timely, market-oriented reforms. implemented by Counterpart International in partnership with the International Center for Not-for-Profit Law. The As a result of the coalition’s initiative and initial accomplishments, goal of USAID’s Civil Society Project is to assist the the private sector in Azerbaijan is becoming better acquainted citizens of Azerbaijan and the Government of Azerbaijan to institutionalize pluralistic, representative approaches to with the opportunities for private sector growth under the WTO shaping and implementing economic and social reform. AmCham Azerbaijan

The American Chamber of Commerce in Azerbaijan is a private, non-profit business About us association supporting and promoting the interests of business in Azerbaijan.

Established in 1996, AmCham is com- posed of over 200 members and associ- ates active in every sector of the Azer­ baijani economy. We represent 80% of all foreign investment, as well as a significant portion of local investment which allows us to promote American, Azerbaijani and multinational corpora- tions. This includes leading companies in Energy, Banking, ICT, Legislative/ Financial Consulting, Professional Serv- ices, Education, Real Estate Develop- ment, Health, Transportation, Travel and Production fields.

An active and positive influence in Azerbaijan, we conduct our mission with integrity and respect for the country, observing all local laws and insisting Membership To apply on the highest ethical standards in all relationships and transactions. There are two types of affiliation with To apply for affiliation with AmCham, AmCham: Member and Associate. a candidate must submit a written application in the form adopted by Why join? Member status includes: voting the Board of Directors. Membership privileges and eligibility for Board and applications are available at the Key member benefit – committee chairmanships in addition AmCham office or on our website at best networking opportunities in to the privileges granted to Associates. www.amchamaz.org. The application Azerbaijan! For affiliation as a Member, a candidate form should be completed and sent to must be a legal entity, registered and our office with the company registration As a member of AmCham, your doing business in Azerbaijan and be certificate issued by the Ministry of company has access to a vast network in good standing in the community, as Justice of Azerbaijan. of business information and contacts in determined by the Board of Directors. Azerbaijan and in the US government, A candidate meeting the objective and as well as valuable information on US A legal entity, branch or representative subjective requirements for affiliation businesses across Europe through office of a legal entity is eligible to be ECACC (European Council of American affiliated with AmCham as an Associate, with AmCham is accepted as either a Chambers of Commerce) and US subject to the Board of Directors’ Member or Associate upon receiving Chamber of Commerce. determination of good standing in the an affirmative majority vote of the community. Board of Directors and paying the first Additional Member Benefits include: year’s fee for the candidate’s category Associates are eligible to participate in of affiliation. Annual Employee Salary Survey various activities; receive our regular Quarterly Inflation Survey publications, including the Membership To maintain affiliation with AmCham, AmCham Membership Directory Directory, Annual National Employee Members and Associates must continue AmCham Resource Library Salary Survey and Quarterly Inflation to meet our eligibility requirements, be Survey. Associates, however, are not in good standing in the community, and For more detailed information please entitled to vote or serve on our Board be current with all financial obligations visit our website www.amchamaz.org of Directors. to AmCham.

30 Summer / Issue 6 AmCham Azerbaijan

AmCham Structure

Board of Directors Executive Committee

Dan Matthews President Baker & McKenzie

Stanley Escudero Maksud Mirzoyev Alum Bati Ilgar Veliyev Movlan Pashayev Board Member Board Member Board Member Board Member Board Member Shieldbearer McDonald’s Wicklow Corporate Ernst & Young PricewaterhouseCoopers Services

Bob Dastmalchi Seymur Khalilov Wayne Walz Bakhtiyar Mammadov Donald Lu Board Member Board Member Board Member Board Member Ex-Officio Board Member Chevron BP Nobel Oil Halliburton US Embassy Staff

Nargiz Nasrullayeva- Fatima Ibrahimova Aylan Zaur Kerimov Muduroglu Member Relations and Aghamaliyeva Accountant Executive Director PR Manager Administrative AmCham Azerbaijan Assistant

31 AmCham Azerbaijan

AmCham at home Visit of Ambassador Richard Morningstar 1 June, 2009

“...let me say from the outset how important foreign investment in all sectors of the economy is to economic development...” Once again, AmCham provided its members with a unique opportunity to meet and be addressed by a high ranking visitor to Azerbaijan- Ambassador Richard Morningstar. Ambassador Morningstar, Secretary of State and Hillary Clinton’s Special Envoy for Eurasian Energy, led the U.S. delegation to the Caspian Oil and Gas Show. Apart from the COGS events, Ambassador Morningstar met with senior government and business leaders during a five-day trip, May 30-June 3.

On Monday, June 1, he delivered an address outlining U.S. positions on energy security matters to the American Chamber of Commerce.

In the course of his remarks, Ambassador Morningstar said, “I’m pleased to have been invited to address the members of the American Chamber of Commerce in Baku. My focus today, of course, will be on energy issues, but let me say from the outset how important foreign investment in all sectors of the economy is to economic development here and to continuing prosperity back in the United States. Openness to foreign investment and a welcoming investment climate, including transparency and respect for the rule of law, are hallmarks of a modern society.”

Following his speech, Ambassador Morningstar fielded questions from members of AmCham and members of the press.

Photographs courtesy of Elkahn, Turan News Agency.

32 Summer / Issue 6 AmCham Azerbaijan

AmCham at the 16th Caspian Oil and Gas Exhibition

The 17th Caspian Oil and Gas Exhibition We were honored to receive a visit of Communication and Information was held in Baku from 2-5 June at from President Ilham Aliyev and Technology. It was encouraging to see the Heydar Aliyev Sport Complex. First Lady Mehriban Khanum, who so many of our members represented Information and brochures describing graciously posed for photographs with at the exhibition. To them we extend AmCham’s role and activities were the representatives of the Chamber. the hope that it was a profitable and distributed at our tastefully decorated Other distinguished visitors of note worthwhile undertaking. stand in Pavilion 3, where we were were Ambassador Richard Morningstar, A word of thanks and recognition is ably represented by Executive Director U.S. Special Envoy for Eurasian extended to our AmCham Staff, whose Nargiz Nasrullayeva-Muduroglu and Energy, U.S. Ambassador Anne Derse efforts and hard work were rewarded by Chairman of the Board of Directors and Mukhtar Gurbanov, Chief of numerous visitors and substantial interest Daniel Matthews. Marketing Department of the Ministry in the work of AmCham in Azerbaijan.

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AmCham abroad ECACC Transatlantic Business Conference

Ms. Nasrullayeva also had the privilege of meeting US Secretary of Commerce Gary Locke and participating in a Roundtable discussion with him. Locke is charged with implementing President Obama’s ambitious agenda to turn the economy around and put people back to work.

Ms. Nasrullayeva raised the very pertinent issue of the reopening of the Foreign Commercial Office to serve the interests of American companies operating in Azerbaijan. AmCham Azerbaijan together with the U.S. Embassy in Baku have been lobbying for this, and although the reopening of the FCO was announced late last year, this has not yet happened.

Executive Director of AmCham Ms. Nargiz Nasrullayeva- This conference was a valuable opportunity to network with Muduroglu attended the annual meeting of the European 40 directors of American Chambers of Commerce based in Council of American Chambers of Commerce (ECACC) in Europe, share information, keep abreast of “hot topics” on the Washington D.C. from 3rd to 10th June, 2009. Hill, identify proposals impacting on Chambers of Commerce, and explore challenges and opportunities in the leadership Founded in 1963, the EUROPEAN COUNCIL OF AMERICAN and function of AmChams around the world. CHAMBERS OF COMMERCE (ECACC) today represents the corporate interests of more than 17.000 American and European companies, based in 39 countries and employing more than 20 million people. ECACC is a network of chambers across Europe for the exchange of best practices and mutual member company benefits. ECACC functions as a forum for discussion, debate and, where necessary, representation on issues relevant to the European business climate.

From its inception, ECACC has been the voice of international business in Europe. It is recognized both in Europe and the United States as an influential opinion-forming body actively engaged in fostering better trade and investment relations between its chambers' host countries and the United States.

ECACC's member companies account for more than $ 1.1 trillion in investment on both sides of the Atlantic.

The two- day Transatlantic Business Conference at ECACC featured a full program of receptions, briefings, speeches and meetings on Capitol Hill.

Ms. Nasrullayeva met with Thomas J. Donahue, President and CEO of the U.S. Chamber of Commerce, who has built the Chamber into a lobbying and political force with expanded influence across the globe. Also of note is the meeting between Ms. Nasrullayeva and Senator Charles Grassley, Ranking Member of the Senate Finance Committee. Senator Grassley spoke on tax deferral issues at the conference.

34 Summer / Issue 6 AmCham Azerbaijan

Business Events Meet the Candidates Cocktail 2 March 2009 The Baku Jazz Centre was the venue for AmCham’s Meet the Candidates Cocktail on 2 March. Campaign statements were displayed on billboards and read with interest by the attendees.

The candidates standing for election to the board of directors were introduced by Executive Director Nargiz Nasrullayeva- Muduroglu, and spoke eloquently despite the 3- minute limit, making the choice a difficult one for voting members. Drinks, a buffet, and mellow jazz vocals provided the background to an evening of successful networking and socializing. Judging by the volume of conversation and the relaxed smiles, the event was enjoyed by all.

35 AmCham Azerbaijan

Business Events We would like to announce the results of the Annual General Annual General Meeting Meeting of AmCham Azerbaijan which took place on March 5th 5 March 2009 2009. Mr. Daniel Matthews, Managing Partner of Baker & McKenzie Baku office has been elected as the President of the American Chamber of Commerce for the period of 2009-2011. Mr. Matthews will be joined on the Board by the following newly elected members:

Mr. Bakhtiyar Mamedov, Government Relations Manager, Halliburton Eurasia Limited; Mr. Bob Dastmalchi, Country Manager, Chevron Corporation (US citizen); Mr. Seymour Khalilov, Vice President, Communication & External Affairs, BP; Mr. Wayne Walz, General Manager, Nobel Oil (US citizen).

Re-elected Board Members: Mr. Ilgar Veliyev, Country Managing Partner, Ernst & Young Holdings (CIS) B.V. Mr. Stanley Escudero, President, Shieldbearer LLC (US citizen).

Continuing Board Members: Mr. Maksud Mirzoyev, President, McDonald’s Azerbaijan. Mr. Alum Bati, Partner, Wicklow Corporate Services. Mr. Movlan Pashayev, Director Tax and Legal, PricewaterhouseCoopers Azerbaijan.

Our congratulations to all the above and our thanks to all nominees who ran. The officers of the Board will be elected at the first meeting later this month. Thank you for attending the Annual General Meeting and taking part in the elections. We appreciate your support and interest in the leadership of the Chamber.

New member Business Insight International Research Group made a presentation and was presented with a plaque.

36 Summer / Issue 6 AmCham Azerbaijan

Members’ Luncheon Business After Hours 31 March 2009 7 April 2009 Our Special Guest Speaker this month was Mr Shahmar Movsumov, Executive Director of State Oil Fund of Azerbaijan. On May 15, 2006 Shahmar Movsumov was appointed Executive Director of the State Oil Fund of the Republic of Azerbaijan by the decision of the President of Azerbaijan Ilham Aliyev. Mr Movsumov chairs the National Committee on EITI.

At the Monthly Members' Luncheon of AmCham Azerbaijan Mr Movsumov spoke about the current status of State Oil Fund being Azerbaijan's Sovereign Wealth Fund.

Some 130 guests and friends attended our Business after Hours event, jointly hosted by BMI and the American Chamber of Commerce in Azerbaijan. The venue for the function, held on April 7th, was The Old Forester pub. Live music performed by the Suleymanbeyli trio welcomed the guests. Everybody enjoyed the opportunity to relax and have fun. Later in the evening the guests participated in a raffle organized by BMI. Leyli Alekperova, a representative of the company, announced the lucky winners of the raffles: Alinaghi Asghari, Standard Oilfield Services and Farid Ismayilzada, Silverkey.

37 AmCham Azerbaijan

Members’ Luncheon Members’ Luncheon 1 May 2009 27 May 2009 At this luncheon, new members Caspian Investment Centre, Oriflame, Starcom MediaVest and Caspian Freight Services were introduced. Presentations were made by CIC and CFS, after which they were presented with plaques by Executive Director Nargiz Nasrullayeva Muduroglu.

Our guest speaker on this occasion was Mr. Arzu Rahmov, Chief of State Migration Service. This body was called into existence by Presidential Decree in 2007, to regulate the procedures for obtaining residence visas and work permits in Azerbaijan.

In his speech, Mr. Rahimov outlined the function and responsibilities of the SMS, as well as correct procedures governing application for these documents. He then took questions from the members, elaborating on procedural issues. On the 1st of May, the American Chamber of Commerce in Of especial note is Mr. Rahimov’s response to a question on Azerbaijan invited members and guests to the Monthly Luncheon corruption. He was unequivocal in his stand against corruption. He to discuss the current situation with regard to legislation and stated that all transactions would be conducted by bank transfer, health issues. and requested members to inform him immediately of any attempt by an official to solicit bribes. According to Mr. Rahimov, Mr Ali Asghari, Standard Oilfield Services, Chairman of corruption is not to be tolerated and will be prosecuted. AmCham Tax and Customs Committee, gave an update of the recent changes to tax and customs related legislation AmCham wishes to commend Mr. Rahimov and the SMS for and made a number of other important announcements. this strong commitment to transparency, which sends such a Dilara Hasanova from SOS International presented a brief clear and positive signal to our membership. overview of AH1N1 flu and answered frequently asked questions. This luncheon marked an important step forward in AmCham’s efforts to establish a working relationship with agencies of Dirck Stryker, USAID, also made a presentation on the government of Azerbaijan. We thank Mr. Rahimov for his Azerbaijan DRC Analysis, followed by a Q&A session participation at our luncheon, and assure him of our support and where members expressed interest in several aspects of cooperation. We look forward to strengthening this relationship the presentation. in future.

38 Summer / Issue 6 AmCham Azerbaijan

Committee Highlights HR Committee ICT committee meeting 24 April 2009 5 May 2009 This meeting under the able leadership of Ms. Ulduz Taghiyeva, Chair of the HR Committee, was called to elicit member questions, feedback and suggestions to present to the representatives of the Labor Ministry and the State Migration Service through interviews in Impact, AmCham’s newsletter.

Heads of HR and International Relations from approximately 25 member companies attended. Questions were raised and documented in a lively discussion of these very current issues.

Impact wishes to thank Ms. Taghiyeva and the HR Committee and all participating members for their cooperation and assistance.

The AmCham ICT Committee meeting on the 5th of May opened with a speech by the chairman of the Committee, Igor Yakovenko, Azel Electronics. The topic to be discussed was ‘Solutions for Crisis- Move Your Business onto the Web’. Kent Babin and Farid Ismayilzada, Silverkey, made a presentation that offered the following solutions: • Websites: what you need to get the right website. • e-Shops: start selling online fast. • Web Applications: offer your product or service online exactly the way you want it. • Online Sales Techniques: generate interest and get people buying We also invited a special guest to the ICT Committee meeting - Mr. Larry Marchese from Chemonics International. After the presentation Kent Babin and Farid Ismayilzada, deputy chairman of the ICT Committee, fielded questions from Larry Travel and Tourism Committee Marchese and attending members. 4 May 2009 The Travel, Hospitality and Tourism Committee of the American Chamber of Commerce in Azerbaijan held its first Spring meeting on the 4th of May.

The main issue covered was the night closure of Heydar Aliyev airport from midnight to 7 a.m. starting July 02, 2009.

Committee members, chairman and guests discussed the disadvantages and negative outcomes of these changes, how it will affect the travel agencies and tourism industry, as well as the possibility of AmCham involvement.

39 AmCham Azerbaijan

Tax and Customs Committee 6 May 2009 The Tax and Customs Committee Meeting took place on the 6th of May in the Landmark building. The meeting was opened by Executive Director of AmCham Nargiz Nasrullayeva and President of the Board of Directors Dan Matthews. The committee chairman Alinaghi Asghari gave a brief summary of tax and customs updates. Delloitte and Touche LLC expert Nuran Kerimov gave a presentation on ‘Profit and Tax’. This was followed by a Q&A session. Members discussed related concerns and shared their experiences, reviewing recent tax and customs issues. HSE Committee 12 May 2009 In our Health, Safety and Environment committee meeting Today, business growth and competitiveness are determined on May 12, Anvar Zalibekov, Schneider Electric, chairman of by the efficiency level of enterprise resource management. the committee, made a presentation about Reducing Risk of These resources include, among others, human, financial and Electrical Risk Hazard. The presentation described a device industrial resources. Efficient management of these resources which reduces the risk of electrical risk hazard. becomes possible only if appropriate tools are used.

Committee members suggested possible ways to distribute ERP, or comprehensive information systems, are the basic this information to all companies in Azerbaijan. Schneider mechanism for modern enterprise resource management. also requested our members to make additions to the ERP systems permit cohesion of all business processes, presentation. Committee chairman and members set the information and external relations of the enterprise into a date and agenda for the next meeting which will take place unified system. The ERP system supports all management on 21 May. functions, from determining of objectives to supervision of implementation.

During our meeting Vadim Yakovlev discussed the following topics:

1. Understanding of the ERP system.

2. How to develop a company’s business and increase competitiveness by use of the ERP system.

3. Examples of ERP tools and their usage in various situations.

ICT committee meeting 13 May 2009 The AmCham ICT Committee had its meeting on the 13th of May in the AZEL offices. Committee Chairman Igor Yakovenko began the meeting by greeting the members. Vadim Yakovlev, certified ERP/CRM specialist of AZEL (Azerbaijan Electronics) company made a presentation on “How to increase your company’s competitiveness by the use of ERP (Enterprise Resource Planning) systems”.

40 Summer / Issue 6 AmCham Azerbaijan

New Members The American Chamber of Commerce is proud to announce that the number of our members has now exceeded 200. We would like to congratulate everybody on this achievement and say that the American Chamber of Commerce in Azerbaijan is committed to supporting our members in working together to build a strong future for business in Azerbaijan.

The latest companies to join AmCham are Hill International, Caspian Investment Center, Nexans Turkey Azerbaijan, Azfinansbank OSJC, Caspian Freight Services LLC, Starcom MediaVest LLC and Oriflame.

41 AmCham Azerbaijan

Members’ News and Events

welcomes Cristina Coscodan

Cristina Coscodan was born in Chisinau.

In 2000, Ms. Coscodan obtained a BSc. degree as Manager of International Economic Relations at the International Economic Relations Faculty of the Academy of Economic Studies of Moldova.

She began her career with Joint Venture Moldcell S.A - provider of mobile telephone services in Moldova as Marketing Director in 2000.

Cristina Coscodan joined Azercell LLC on November, 2008.

Cristina Coscodan is a Marketing Director with extensive experience in strategic planning and project management. She is versatile with market analysis, product and service development, marketing communications, financial planning and tracking. She has the ability to meet tight deadlines and challenging budgets. She has good Cristina Coscodan, organizational and negotiator skills. She is a team builder and team member who Marketing Director, Azercell, enjoys new challenges. Azerbaijan

announces General Manager

Mr. Sukhostavskiy arrived in Baku at the end Mr. Sukhostavskiy has an extensive of March and has been guiding the digital print background in print material management center in Baku. In addition, he is overseeing for private businesses and non-profit the construction of the new offset print facility organizations. He spent 15 years working for that is slated for completion in the fall of this Cenveo, Inc. in the United States, starting his year. Once completed, Mr. Sukhostavskiy will career as a press operator and working his manage both facilities. way to management eight years ago.

Born in Kiev, Ukraine, Mr. Sukhostavskiy Teaming Mr. Sukhostavskiy’s talents and received a BSc in Mechanical Engineering background with a skilled team of local from Kiev Polytechnic Institute before professionals gives Mozaik’s customers an emigrating to the United States. opportunity to work with a print production company providing a western style of quality Attended Business School of the Owens and service. College and the University of Toledo. Yuriy Sukhostavskiy, Received certification from American He adds, “We want to position ourselves as the General Manager, Mozaik Management Association and Carnegie company that exceeds clients' expectations Design & Printing University in NY. and contributes to their success.”

42 Summer / Issue 6 AmCham Azerbaijan

Members in the Community Whether encouraging promising young people or helping the underprivileged, AmCham members are actively involved in the local community, giving generously of their time and resources to many worthy causes. Building the Network with Business 21 May 2009 On Thursday, May 21 a group of MBA students from the School of Economics and Management of Khazar University met with Maksud Mirzoyev, the General Manager of McDonald’s in Azerbaijan. As part of their team assignment for the HR management class the students had to choose an organization and analyze its competitive strategy and HR system. Mr. Mirzoyev invited the whole group to his sleek office in Genjilik and spent over two hours answering questions. Using this first- hand information about the business in Azerbaijan and the findings of their research on McDonald’s in other countries, the team prepared a three-page report and power point presentation. While the project was designed to help students develop their analytical skills and critical thinking, they were also encouraged to provide suggestions to Mr. Mirzoyev on how to achieve a better fit between the company’s strategy and HR system. The results of this student consulting project were shared with McDonald’s and presented at Khazar University on June 11.

The Rotary Club of Baku International (RCBI) hosted their 3rd Charity Run at Mozaik LLC Annual Rotary Run on June 6th. Mozaik LLC provided their premises which marked the finishing line of the run, and with 6 June 2009 other members of the Rotary Club, sponsored the food and cold drinks served to the participants. About 40 members, guests and friends participated, raising over 3,000 AZN which will be used to fund several RCBI projects for welfare of orphans, Internally Displaced People and development of youth in rural areas including a children’s educational book and a kitchen at Saray Orphanage.

Mozaik has also completed a campaign for blood donors, and has commenced on a project for the Peace Corps, printing a book for the Writing Olympics, an essay-writing contest for talented young students 12-14 years of age. Within the framework of a Rotary Club Project, Mozaik has also printed, free of charge, a book of children’s stories written by Azerbaijani authors in Azeri language, to be distributed to sponsors who will then order more books for distribution to children at schools, orphanages and other organizations.

Yuriy Sukhostavskiy, General Manager of Mozaik LLC, says, “Mozaik is always delighted to participate in charity projects and help the community. Giving is always going to be our privilege and I thank Rotary for this wonderful opportunity.”

43 AmCham Azerbaijan

Members in the Community The finals of the FameLab-2009 Contest held with the FameLab Contest for organizational support and co-funding of The British Council, Caucasus University and Azercell Telecom LLC were held talented youngsters at Park Inn Hotel, Baku on May 13, 2009. The names of the winners were announced and they were presented with prizes 13 May 2009 generously donated by Azercell LLC. All of the Contest participants received valuable gifts from Azercell The objective in organizing this contest is to support and encourage young science scholars. Ms. Ulviya Hasanzade, Head of Corporate Relations and Social Responsibility Department of Azercell Telecom LLC said, “Our misssion is to maintain and share existing values and create new ones. In this respect, it is very important for Azercell to support our talented youth”.

The winner of the competition, Mr. Elchin Ibrahimov of Caucasus University, will participate in the Cheltenham Science Festival to be held in the United Kingdom this June. Thanks to Azercell Telecom LLC none of the participants left empty handed. Azercell presented special gifts and memory cards to all 30 participants who successfully completed the first stage of the contest. iPods were presented to the 10 finalists. In the category “Azercell’s Sympathy”, Azercell Telecom nominated Mr. Elchin Ibrahimov from Caucasus University for his work on Newton Laws and presented him with a mobile phone. “Nobody can do everything, but everyone can do something”

For more than a decade, freight • Total sanitation refurbishment (toilets/ Forwarding Caspian has been involved forwarding experts ACE Forwarding wash rooms) of three separate in many other worthwhile projects. They Caspian, have worked jointly with children’s orphanages are committed to the long term future of the Irish Society of Baku to improve Azerbaijan orphanages and will continue conditions at local orphanages. ACE • Employment of Occupational to help assist wherever possible to make and the Irish Society have not only Therapists to train orphanages staff whatever difference they can. helped the orphans, and indeed the in western methods staff of the orphanages, but also If you would like details of further projects extended charitable assistance to • Building a clinic for a local leprosarium or wish to help by making a donation of many other underprivileged citizens time, materials or finance, you can do so in Azerbaijan. In the last eleven • Organizing summer camps for by contacting [email protected] years the donations made in cash, orphans and refugee children construction work and refurbishment undertaken amount to a value • Refurbishment of a hospital wing for exceeding $500,000.00. up to 100 underprivileged children

ACE Forwarding Caspian employees As the headline says, everyone can do also actively get involved in the work something. ACE Caspian is a company itself and ensure each dollar is spent actively doing as much as they can wisely for the projects we help raise outside their normal business activities money to fund. Some of the projects that to help raise funds and awareness of have benefited from this:- needy causes within Azerbaijan. ACE

44 Summer / Issue 6 AmCham Azerbaijan

Projects Consumer Price Index Report The Consumer Price Index (CPI) is designed to measure the change in the average level of prices paid for consumer goods and services by private households. AmCham members will find it useful in setting pay increases, product prices etc. The CPI can also be used to determine the current value of a sum of money, comparing past and present values. Over the last year (the base is 100 at 31 March 2008) the AAIP rose by 14.15 percent for Azerbaijani consumers and 13.74 for Expatriate consumers. As always we hope you will find the report interesting and useful and look forward to your comments on how to improve its content and layout.

We have recently added two new features to our software system New features on the for the benefit of our members. These features are added to the current list that already includes a detailed membership directory, AmCham website company profile, list of company employees, list of committee meeting minutes, repository of inflation surveys, and the ability to accept/reject event invitations.

The first new feature is a list of all AmCham member representatives filtered by membership type (Regular/Associate). This should allow easier access to other members of AmCham.

The second feature is a list of all AmCham committee members filtered by committee. Members can now easily access contact information for every person in the AmCham committees.

Go to the e-AmCham software system to check out these new features! If you forget your password, please use the forget password feature provided on the login screen. If you still can’t login, please contact the AmCham office. We will be happy to help!

And remember, you have to be a member to take advantage of this system.

Dear Members, you may now take advantage of the new AmCham Website and AmCham Membership Directory. For non-members: You are currently viewing our website as a guest which gives you limited access to most discussions and to our other features. By joining our chamber you will have access to the latest news, network with other members, participate in committee meetings, upload content and receive special information and updates. Registration is fast and simple, so please join AmCham today! If you have any problems with the registration process or your account login, please contact us at [email protected]

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AmCham Azerbaijan

Member to Member (M2M) Discount Program Discount Providers

HYATT AZEL SEABAK - From 5% to 10% for all type of - From 5% to 10% for onsite helpdesk equipment -15% in all F&B outlets support by junior IT technician -15% on laundry and dry cleaning Shop Addresses: - From 10% to 15% for remote admin- services 1. Nizami str., 68 –SONY-AZEL istration by senior IT engineer 2. “28”, May street, 20 (corner of Azad- lyg ave) - AZEL shop WICKLOW CORPORATE 3. Azadlyg ave., 97 – AZEL shop SERVICES 4. “Nargiz” shopping center at the Foun- ATA HOLDING tains Square – Toshiba-AZEL show-room 5% discounts ATA INSURANCE on hourly fee rates 1. Insurance Wicklow Corporate Services Ltd. - Property insurance – up to 15% 8/15 Sheikh Shamil Street - Motor insurance – up to 10% Baku AZ1001 - Cargo insurance – up to 15% Azerbaijan - Personal accident – up to 15% SILVERKEY - Machinery breakdown – up to 10% 20% off the basic website price (up - Travel insurance – up to 15% to 20 pages in 1 language, CMS, 1 year free hosting) 2. Free legal advice (during an insur- ance accident or during the process of choosing the most appropriate insur- ance package) LUFTHANSA EXCELSIOR 3. Next insurance year the clients are -7% for tickets (provided they are bought - 15% on our Duke and Heritage eligible to benefit from 5% to 7% dis- in our office) and access to the business rooms counts (in case an insurance accident class lounge in Heydar Aliyev Airport - 15% for all rentals of conference hasn’t happened during the past year) rooms - 10% for all catering contracted with 4. Additional bonuses aimed to en- the rentals of these conference rooms: courage potential clients cocktails, coffee - breaks, dinners, luncheons, etc ATA BANK PUBLIC RELATIONS & PRO- - 10% in our Belvedere Restaurant on Special M2M Discount Package is MOTION GROUP (PRP) all food and beverage items. available at Ata Bank and AmCham 5% discount on all the agency works - 20% on the 1 year membership for offices upon request. (excluding the 3rd party costs) our Aura Spa

47 AmCham Azerbaijan

3M 10% on the following 3M products: - Visuals (Digital Projectors, Digital ALTES GROUP Boards, Vikuiti Rear Projection Film) BAKER & PARTNERS Distributors: AZEL, Integral, Meridian - 5% for all Altes Group apartments - 25% on all Baker & Partners ser- portfolio vices including: - Building&Construction (Window Films) - brand analysis and audit Distributors: Times Consulting - brand strategy development - brand management - Medical products (microbiology) Distributors: Vitta Medical Production, - 10% on advertisement in Online ARASH Business Journal CEO-Azerbaijan OFFICE SYSTEMS - 10% on all office chairs - 15% on office furniture (excluding metal) RADISSON - 10% on all Published Retail Room Rates HOLIDAY INN - 10% in all F&B outlets

CRESCENT BEACH HOTEL - 10% for Accommodation PHILOSOPHY TRAVEL PARK INN - 10% Food & Beverage - 5% on any travel arrangements - 10% in All F&B Outlets.

How to join the Program: Members willing to join the Program and offer their products/ services at special discount to AmCham Regular Members have to inform the AmCham office in writing. A discount pro- vider has to indicate the product(s) or service(s) and discount rate(s). How to obtain discounts: All Regular Members, no matter whether they provide dis- counts as part of the Program or not, can obtain discounts. Members can find information about the discounts in the M2M Section of our website www.amchamaz.org How is M2M advertised? The program will only be advertised internally through the Am- Cham communications channels: AmCham Website and Am- Cham Quarterly Magazine – “IMPACT Azerbaijan”. Note: The cards are for personal use only. A card holder is committed to return the card to AmCham in case he/she leaves a Member establishment.

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