Kazaks Take Step Towards Trade Bloc With Russia

Kazakstan’s economy could become more vulnerable to Russian competitors after the country joined a regional customs union at the start of the year, analysts warn.

A customs union agreed by Russia, Kazakstan 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 the Russia’s long frontier with Kazakstan 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 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 Organisation, WTO, which Moscow applied to join as long ago as 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. (See Kazaks Agree to Joint WTO Approach, RCA No. 582, 07-Jul-09.)

Officials in Kazakstan 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 labour and capital within the customs-union states.

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

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

“I think Kazak businesses need to prepare themselves for strong pressure from Russian entrepreneurs,” political analyst Dosym Satpaev told IWPR.

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 Kazak 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.”

Sociologist Gaziz Nasyrov shares Satpaev’s scepticism, 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 subsidise 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 attained a certain level of prosperity, so that they could afford the process of levelling out for the sake of common values.”

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

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

President Nazarbaev 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 Kazak state.

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

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

“Nazarbaev 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 Kazakstan and Russia are key trading partners, investors and political allies.

Daulet Kanagatuly is an IWPR-trained journalist in Kazakstan.