Why Kazakhstan joined the Customs Union with Russia and Belarus?

December 11. KAZINFORM

Why Kazakhstan joined the Customs Union with Russia and Belarus?On November 27, 2009 leaders of Kazakhstan, Russia and Belarus gathered in Minsk to sign final agreements on the trilateral Customs Union.

Recently, there have been a lot of questions as to why Kazakhstan joined the Union and some even questioned the organization’s economic credibility stating political reasons as the rationale behind the Union’s establishment.

However, economic advantages of the Customs Union for Kazakhstan are obvious: increase in trade volumes, improvement of investment climate within the union, free movement of labor, capital and goods in the common customs space as well as better access to outside markets for domestic producers.

Kazakhstan is the largest land-locked country in the world and much of its foreign trade depends on the routes that go through the territories of neighboring states and membership in the Customs Union will provide Kazakhstan’s businesses with domestic (non-discriminatory) transit tariffs.

One of the main priorities of Kazakhstan’s Government is to further develop non-extractive sectors and diversify the economy as well as promote exports of highly marketable products. The single customs tariff within the Customs Union will expand the regional market and promote Kazakhstan’s exports.

As for the future customs tariff policy within the Customs Union, Kazakhstan has agreed with other member countries to maintain a transitional period that will vary between 1,5 and 5 years depending on the type of goods. It is important that Kazakhstan has been granted transitional periods for the goods that today are mostly imported from the third countries but are planned to be produced domestically in the near future as per the Government’s strategy on diversification of the national economy.

Kazakhstan has also agreed with fellow Customs Union members on the application of “investment preferences”. This preferential treatment is aimed at maintaining favorable investment climate for the diversification of national economies and production of value-added goods and services within the member states of the Customs Union, Kazinform refers to special issue No 40 of the Kazakh Embassy in the USA.

The Common Import Tariff of the Customs Union, signed by the leaders of the three countries will be enacted on January 1, 2010, and it includes the following:

Import duties will not be collected upon importation of technological equipment, parts of equipment, inputs and raw materials, which are imported exclusively for implementation of priority investment projects as defined in the national legislation of the CU member-states.

There is a special regulation for raw materials and inputs. The preferential treatment will be applied to both raw materials and inputs that are not produced within the member-states of the Customs Union, and the raw materials and inputs that are produced within the member-states of the Customs Union and do not relate to priority investment projects. 

The Customs Union would also entail the establishment of a unified commodity market with a total GDP of about $2 trillion (2008) and population of 168 million people.  Access to a huge market within a unified customs territory would make Kazakhstan even more attractive for foreign investors who already consider our country as one of the best markets in our part of the world.

The above regulations will provide sizable benefits for Kazakhstan and serve its long-term economic priorities. The country’s decision to join the Customs Union was based on Kazakhstan’s national economic interests including:

Unimpeded access to global markets;

Expanding trade with large neighboring economies;

Accelerated economic diversification by moving towards service and technology based economy.