When Kazakhstan joined the Russian-led Customs Union in 2010, it leaders were extremely upbeat about the prospects of this trade organization that also includes Belarus.
Kazakhstan President Nursultan Nazarbayev hailed the bloc and said it would give a $16 billion boost to his country’s economy annually and help the trio of nations take a key position in the world energy and grain market.
However, just three years on, moods have soured. Trade volumes are shrinking within the Customs Union this year, and Kazakhstan is being hit the most. Its trade dropped by 15.8 percent in the first five months of this year, according to Customs Union statistics quoted in a September report by Da Vinci AG, a Ukrainian consultancy.
Kazakhstan is even talking about conducting a referendum on leaving the Customs Union. Instead of the expected economic boost, the trade union brought a price hike for many goods, including food and fuel, and many other troubles such as non-tariff barriers for trade – particularly technical, health and safety requirements.
Kazakhstan’s experience in the Customs Union can be especially valuable for Ukraine as it strives to sign an Association Agreement with the European Union during the Nov. 28-29 Eastern Partnership Summit in Vilnius, Lithuania. Ukraine has come under intense pressure by Russia to join Customs Union instead.
Kazakhstan and Belarus had to adjust to the Russian customs tariffs for foreign goods, which were the highest among the three nations. “Astana reluctantly agreed to increase its import tariffs at the level of Russia’s, but that predictably backfired,” says Margarita Assenova, director of programs for Balkans, Caucasus and Central Asia at Jamestown Foundation.
The reason Kazakhstan agreed to this is because the “Customs Union was negotiated during the peak of the economic crisis in 2009 when Kazakhstan was hard pressed to find economic and trade options,” she says.
Even though trade turnover did grow within the Customs Union since 2010, nasty side effects showed up quickly, too.
“The high import tariffs affected the middle class that has to pay more for European, American and Chinese automobiles, furniture and apparel, but they also had a profound effect on the small and medium business that is critical for the country’s economic development,” says Assenova.
William Veale, executive director of U.S.-Kazakhstan Business Association, says that import tariffs in some cases affected whole industries, most notably agriculture. “The modernization of Kazakhstan’s agricultural sector through imports of reliable, quality agricultural machinery has been put at risk by high (33 percent) tariffs on outside equipment,” he says.
Business started to look for ways out of this problem. American company John Deere, whose combines are in high demand in Kazakhstan, is expected to launch the production of combines there, Marat Tolibayev, agriculture deputy minister of Kazakhstan said in February, according to Tengri news portal.
“Nowadays, the import tariffs on John Deere combines are 32.5 percent (the average price of a combine is 250,000-300,000 euros). It’s obvious that combines made in Kazakhstan will be cheaper,” Tolibayev was quoted as saying.
On the other hand, the removal of customs checks within the borders of Customs Union led to an increase in illegal drug trafficking from Kazakhstan as well as from China via Kazakhstan to Russia, and has “exceeded all expectations,” according to the Da Vinci AG study.
The problem can be resolved by toughening the process of customs inspection at Kazakhstan’s border with Russia, and Russia’s with Belarus, which, though, contradicts the point of Customs Union,” the report concludes.
The Jamestown Foundation’s Assenova notes: “Although Kazakhstan’s President Nursultan Nazarbayev was the one to initially promote the idea of an Eurasian Union as an economic cooperation mechanism, he would not agree to a political union or any kind of political domination by Russia. If the Kremlin continues to use the Customs Union as a tool to establish economic and political control over the neighboring countries, Kazakhstan will not participate in such an attempt and may even withdraw from the Customs Union as a tool to establish economic and political control over the neighboring countries, Kazakhstan will not participate in such an attempt and may even withdraw from the Customs Union when it joins the WTO.”
Kyiv Post staff writer Anastasia Forina can be reached at [email protected]
Kazakhstan at a glance:
Territory: 2,724,900 square kilometers.
Population: 17.7 million.
Government type: republic, authoritarian presidential rule; little power outside the executive branch.
Head of government: Prime Minister Serik Akhmetov (since September 2012).
GDP: $235.6 billion.
GDP per capita: $14,100.
Main industries: oil, iron and steel, chemicals, tractors and other agricultural machinery, electric motors, construction materials.
Ukrainian-Kazakh relations:
Trade: $5.5 billion in 2012
Exports from Kazakhstan to Ukraine: oil, ferrous metals, chemicals, reactors
Exports from Ukraine to Kazakhstan: metallurgy products, railway locomotives, reactors, dairy, bread and flour products, pharmaceuticals
Kazakhstan’s investment in Ukraine: $792.7 million
Ukraine’s investment in Kazakhstan: $69.3 million
Source: Embassy of Kazakhstan in Ukraine, CIA Factbook
