Customs Deal Brings Kazaks Closer to Russia

Wednesday, 21 July, 2010

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Saule Mukhametrakhimova

Central Asia Editor

Leaders of Russia, Kazakstan and Belarus signed a statement on July 5 introducing a single customs regime for all three countries, a significant step towards creating a common market for a combined population of some 170 million people by the end of 2012. 

The deal was signed at a meeting in the Kazak capital Astana on July 5 by Russian president Dmitry Medvedev, Kazakstan’s leader Nursultan Nazarbaev and their Belarusian counterpart Alexander Lukashenko. The three countries have been in a customs union since the beginning of the year, following a final agreement signed by the three leaders in November.

The July meeting took place on the sidelines of a summit of the Eurasian Economic Community, EurAsEC, a wider grouping that also includes Kyrgyzstan, Tajikistan, Ukraine and Armenia. During the summit, Kyrgyz and Tajik officials expressed an interest in joining the customs union.

IWPR asked Galina Nakhmanovich, an economist with the Almaty-based Institute of Political Solutions, to explain the significance of the new customs rules for Kazakstan.

IWPR: What’s the significance for Kazakstan? What specifically has changed?

Nakhmanovich: The entry into force of the customs code will have a profound effect on the way business is done in Kazakstan… whether it’s large exporters of raw materials or a small and medium-sized commercial firms operating only on the domestic market. The specific nature of Kazakstan’s economy – its orientation towards raw materials exports, its underdeveloped processing industries, the low level of domestic consumption, and its remoteness from markets in the developed world in terms of transport – makes it particularly vulnerable to things like this.

For a transitional period when certain existing standards continue in force for some member countries, the changes will not be so visible. But later on, if the customs union project works out, there will be radical changes.

IWPR: Kazakstan’s accession to the customs union has been criticised by various political and business groups inside the country, who say it won’t benefit the country. Are their criticisms justified?

Nakhmanovich: The constructive criticisms mainly concern the numerous unresolved legal issues, above all the mechanics of trade regulation. Such criticism mostly comes from those who are practically involved in running businesses, and above all those working on the logistics side. Kazakstan’s businessmen have an interest in rules for transporting, promoting and selling goods, capital and labour that are as understandable, transparent and simple as possible. Many of their comments are valuable and should be looked at by the customs union commission.

There’s also criticism from certain commercial circles which don’t want to change current ways of doing business and are therefore trying to fight back by exploiting the lack of public awareness.

The customs union also has its political opponents, above all among the “national patriots”, who want to gain political capital by resisting it and using various scaremongering slogans to the effect that Kazakstan is falling under the Russian yoke, that it’s becoming Russia’s back yard for raw materials, or that the customs union is a road back to the USSR.

IWPR: One of the concerns expressed by critics of the customs union is that Russia will use its dominant economic position to ensure that the customs union’s rules are more advantageous to it. The most commonly cited example is that car import duties will rise to Russian levels, which will benefit Russian manufacturers but hit consumers in Kazakstan. Are these concerns justified?

Nakhmanovich: It’s impossible to say for sure that Russia is the only one dictating its own rules for the customs union…. Each country has its own, long-established customs practices.

So far, some of the issues have been resolved by introducing a transitional phase during which customs duties on some categories of goods, for example car imports to Kazakstan and Belarus. At the same time, Kazakstan has made concessions by cancelling the old simplified procedures for individuals importing up to 2,000 tons of consumer goods.

IWPR: This will obviously have an impact on small traders. What are the implications of this new rule for this kind of trade?

Nakhmanovich: Abolishing this import regulation and introducing new rules for individuals effectively changes the entire business of local shuttle-trading. It’s still hard to say what impact it will have on their income, expenditure and costs. One thing that is clear is that it will change the logistics of their business.

The common customs area carries risks but offers big opportunities by providing access to markets in Russia and Belarus. By using its geographical advantage – its location between Russia and China – Kazakstan could earn a good income.

The new legal and regulatory framework, standards and regulations introduced by the customs union will have a significant influence on wholesale and retail trade…. It means the beginning of the end for shuttle trading in Kazakstan…. Initially it will lead to price rises for imports that used to be cheap, as the volume of “grey imports” will be significantly reduced.

As for the prospect of unemployment created by the customs union, this is a multi-faceted problem. On the one hand, the closure of flea markets will put traders there out of work. On the other hand, the customs union will mean new trade and logistical centres are needed, generating new jobs. Moreover, people who are laid off will not only get new jobs, but also social guarantees, for example, guaranteed wages, pension contributions, paid leave and so on. It is no secret that many of these workers are basically operating illegally, with no guaranteed wages and completely reliant on the integrity of their employer.

IWPR: The introduction of the customs union is just the first step towards establishing a common economic space among member countries. What other practical issues have to be solved along this road?

Nakhmanovich: All the member states view the introduction of a customs code as the start of a transition that will precede the full operation of the customs union. Common customs duties are in place, the customs code has been signed, and discussions are under way about the next stage of integration – developing a legal and regulatory framework for the common economic space.

But many issues remain unresolved – strengthening the borders of member countries, the time-scale for ending customs controls on the borders… harmonisation of member’s members’ tax legislation, and much else….

The success of the customs union project depends to a large extent on how long and effective the transitional phase is, since the legal ambiguities and confusion will prolong the process for many years and negate efforts towards its creation.

There are examples of how problems can be solved. As of July 6, Russian, Belarusian and Kazak businessmen can either use a common customs declaration confirming the quality of goods or continue to use their national documents until January 2012.

Saule Mukhametrakhimova is IWPR Central Asia editor in London

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.