Common Market to Transform Kazakstan

When the presidents of Russia, Kazakstan and Belarus signed off on common customs procedures on July 5, it was a major step towards activating the trilateral customs union that came into being at the beginning of this year. 

Within Kazakstan, there is a need to depoliticise the question of customs union membership and judge it solely by the hard facts and probable effects, rather than by unfounded statements by a narrow class of businessmen or politicians pursuing their own ends. That means looking at the implications for the various actors – consumers as well as producers – in the wider context of globalisation.

In its final form, the customs union envisages an end to customs barriers between member states, common duties on imports from third countries, and a shared trade policy.

For Kazakstan, accession to the union will have complex, diverse and multi-faceted effects. These will be variously positive or negative for different social groups and corporate entities. This is logical given that their economic interests differ – for example, consumers and producers have completely opposing interests when it comes to pricing.

As Russian and Belarusian companies gain easier access to the Kazakstan market, domestic companies will clearly face greater competition, and local producers will be at a disadvantage, particularly those in the food and light industrial sectors. But what is bad for producers may be good for the consumer, as competition will bring lower prices.

Take another problem – increasing duties to the Russian level will make imports more expensive for Kazakstan, for example cars, which Kazakstan imports but does not make, unlike Russia.

But it is important to realise that customs union arrangements are reached through compromise, so a rise in import duties for Kazakstan will be compensated for by reductions in other areas. For instances, transit charges for Kazak goods passing through Russia will go down, while agricultural produce from Kazakstan will gain wider access to the Russian market.

Regional integration is now a rising trend around the world. There are now 34 regional trade agreements including 14 customs unions spread across all continents. It is an essential part of globalisation, driven by the need to make national economies more competitive and stable in an environment of increasing global instability.

In all such arrangements, wherever they may be, elements of national economic sovereignty are delegated to a supra-national institution.

Until the Russia-Kazakstan-Belarus union has really made some headway, it will be impossible to quantify the advantages of membership. For now, one figure worth noting is that the actual customs revenues Kazakstan will get will be much higher than they would logically be if they were directly proportional to its share of all imports from outside the customs union. That reflects the measures taken to compensate it for higher duties on imports within the union.

There may be fears that higher import duties for items coming from outside the union will fuel domestic inflation by bumping up retail prices. But this is only part of the story. One must not forget that duties on items from Russia and Belarus will generally be lower, and since these include foodstuffs, they account for a high proportion of the average consumer basket.

There is thus little need to fear that the customs union itself will result in inflation. What is more likely is that prices will go up as the economy grows and the standard of living rises, assuming that Kazakstan’s exports benefit from healthier global commodities markets.

In short, the overall balance sheet looks positive. Kazakstan’s entry to a common customs zone will reduce the cost of trading with fellow-members – an important factor given that Russia is its biggest trading partner. Stronger trade will stimulate economic growth, as ahs happened in other customs unions.

And most important of all, the main advantage for Kazakstan that being in a common market which will make its economy look more inviting to investors. Its market is not currently big enough to attract large manufacturing firms. And it needs this kind of investment if it is to diversify from its current reliance on the extraction and export of oil and metals.

As part of a market of 170 million consumers, Kazakstan could realistically move towards high-end manufacturing driven by foreign investment.

Vyacheslav Dodonov is senior researcher at the Kazakstan Institute for Strategic Studies.

This article was produced jointly under two IWPR projects: Building Central Asian Human Rights Protection & Education Through the Media, funded by the European Commission; and the Human Rights Reporting, Confidence Building and Conflict Information Programme, funded by the Foreign Ministry of Norway.

The contents of this article are the sole responsibility of IWPR and can in no way be taken to reflect the views of either the European Union or the Foreign Ministry of Norway.