Kazakhs weigh gains from customs pact

Jan 19. Asia Times. ALMATY

By Daulet Kanagatuly

Kazakhs weigh gains from customs pactKazakhstan’s economy could become more vulnerable to Russian competitors following the country’s joining of a regional customs union at the start of the year, analysts warn.

A customs union agreed by Russia, Kazakhstan and Belarus came into force on January 1, with the three states adopting common customs tariffs as the first of several steps towards creating a common economic area by the end of 2012. Customs controls on Russia’s long frontier with Kazakhstan will continue until next year, in contrast to the checkpoints on its western border with Belarus, which are scheduled for closure as early as this July.

The long-discussed customs union between these three former parts of the Soviet Union was signed in late November last year when their presidents met in the Belarusian capital, Minsk. The decision to set it up was taken in 2007 at a meeting of the Eurasian Economic Community, EurAsEC, a grouping that also includes Kyrgyzstan and Tajikistan.

The customs union is not intended as a substitute for membership of the World Trade Organization (WTO), which Moscow applied to join in 1993. The three countries have made it clear they will continue efforts to join, either coordinating their separate bids or, as they suggested last summer, as a tripartite bloc.

Officials in Kazakhstan are predicting that their country will reap benefits from increased trade, a better investment climate and the other advantages created by the free movement of labor and capital within the customs-union states.

In his New Year address to the nation, Kazakh President Nursultan Nazarbayev said the planned common economic area would “strengthen our economy, open up new prospects, and improve the standard of living of Kazakhstan’s citizens”.

Some analysts are not so optimistic, at least regarding the short-term benefits to Kazakhstan. They argue that lifting trade barriers could bring a flood of imports, undermine domestic producers and drive inflation upwards.

“I think Kazakh businesses need to prepare themselves for strong pressure from Russian entrepreneurs,” a political analyst, Dosym Satpaev, told the Institute for War and Peace Reporting.

Russia’s huge natural resources and its comparatively well-developed industry and competitive products are likely to gain the advantage in the next three or four years, he said, noting that the smaller Kazakh economy was some way behind in the quality, design and marketing of such items as farm and dairy products.

In its current shape, Satpaev said, “We are not ready for integration processes of this kind.”

A sociologist, Gaziz Nasyrov, shares Satpaev’s skepticism, saying that although parallels have been drawn with the European Union, the comparison does not really work as the former Soviet republics are at a lower stage of economic development, so richer states cannot afford to subsidize the poorer ones.

“I doubt the customs union is going to lead our countries to prosperity,” said Nasyrov. “In Europe, before joining the union, the countries had gone a long way and had attained a certain level of prosperity, so that they could afford the process of leveling out for the sake of common values.”

Eduard Poletaev, editor-in-chief of the magazine Moy Bizness Kazakhstan, believes Kazakhstan’s leaders had political as well as economic considerations in mind when they formed a customs union with their large and powerful neighbor, Russia.

“It was above all a political act,” he said.

Nazarbayev has worked hard to maintain cordial relations with Moscow since the Soviet Union broke up in 1991. Part of his strategy has been to ensure that the large ethnic Russian community concentrated in the north of the country feels it has a future in the new Kazakh state.

Poletaev suggests that one benefit of the customs union will be to prevent people feeling the need to emigrate from one state to another, since economic conditions will tend to converge.

As Satpaev pointed out, the Kazakh leader has always been a strong advocate of maintaining and strengthening ties with former Soviet neighbors, when others have been lukewarm.

“Nazarbayev regards himself as the father of integration within the Commonwealth of Independent States, and he views the customs union as his brainchild,” said the analyst.

However, Moscow may also have a geopolitical interest in aligning itself with Central Asia’s most successful economy.

“Kyrgyzstan will soon join the other three members of the customs union, and Tajikistan will follow,” said Satpaev. “Then we’ll be able to say Moscow is rebuilding its status in the region.”

Kyrgyzstan joined the WTO in 1998, but membership of the customs union could offer it additional benefits, given that Kazakhstan and Russia are key trading partners, investors and political allies.