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Conference spotlights Kazakhstan’s fast-moving bid to join World Trade Organization

28 december 2012, 17:45
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A lot of Kazakhs have expressed concern that the country’s quest to join two free-trade organizations -- the Customs Union and the World Trade Organization – will backfire, damaging the domestic economy rather than helping it.

They argue that many domestic industries will be unable to compete against foreign companies doing business in Kazakhstan if the government eliminates protection mechanisms such as import tariffs and subsidies.

One of the speakers at a recent conference on Kazakhstan’s drive toward WTO membership offered reassurances to domestic businesses, however.

Ali Mahmoud, a senior economic-integration specialist at the Islamic Development Bank, said Kazakhstan will benefit over time. But WTO membership “may not provide quick benefits,” he cautioned. “It may take years.”

Ambassador Ali Mahmoud. Photo courtesy of Ali Mahmoud

Ambassador Ali Mahmoud. Photo courtesy of Ali Mahmoud

The key to a winning WTO experience is opening domestic markets gradually, the former Sudanese ambassador advised. “If not done right, it could be harmful,” said Ali, who works at the Islamic Development Bank’s headquarters in Jeddah, Saudi Arabia.

Any country joining the WTO needs a “well-developed national strategy for improving (domestic) competitiveness,” Ali added.

Kazakhstan requires a five-year transition to the WTO to keep from harming its domestic industry, contended Rakhim Oshakbayev, first deputy CEO of Atameken, an umbrella group of chambers of commerce nationwide.

Ali and Oshakbayev were among scores of Kazakh and international experts at the conference who shed light on the country’s efforts to make economic and trade policies meet WTO mandates.

The European Union funded a project in June of 2010 to advise Kazakhstan on its policy-realignment program. The conference on December 14 marked the end of the 2 ½-year project.

International trade is a complicated business, so a lot of themes surfaced during the day-long gathering. Here are highlights from conference presentations and interviews with participants:

-- A bright spot for Kazakhstan is that the country’s trade legislation “has been brought practically into full conformity with the relevant WTO agreements,” according to Anar Mammadov, a specialist in trade in goods, services and commodities with the United Nations Conference on Trade and Development.

-- Another bright spot is that in the past two years Kazakhstan has accelerated its efforts to join the WTO, according to Marius Bordalba, team leader of the EU-funded advisory project for Kazakhstan.

Before 2011, Kazakhstan’s major trade-integration focus was forming the regional trade bloc known as the Customs Union with Russia and Belarus in January of 2010, Bordalba said.

Kazakhstan’s work on WTO membership has been frenetic since December of 2011, when President Nursultan Nazarbayev called for the pace to be picked up, Bordalba said. Kazakhstan had working-group meetings with WTO members in March, July, October and December of this year, said the Spaniard, who is an international-trade attorney.

Working-group meetings require days of preparation to respond to WTO members’ questions and comments, Bordalba said, so the pace that Kazakhstan’s trade team has been keeping this year has been “very intense.”

-- Kazakhstan continues to work on such WTO demands as lowering import and export duties, making agricultural subsidies conform to international norms, reviewing state-owned corporations’ role in the economy, implementing international standards on trade in plants and animals, and doing something about domestic-content rules, Bordalba said.

The main areas of Kazakhstan-WTO disagreement in the services sector are finance, telecommunications and foreigners’ difficulty gaining entry to Kazakhstan to work on short-term projects, said Mammadov, an Azeri national. He stressed that he was offering his insight as an individual and not in his United Nations capacity.

The WTO’s demand that Kazakhstan reconsider its domestic-content rules will upset many Kazakhs. The government issued its first domestic-content decree a decade ago in response to complaints that too few Kazakh businesses and individuals were sharing in the country’s economic progress. It has made the provisions more sweeping since then.

The rules require that a percentage of the goods and services awarded under state contracts go to Kazakhs. They also require international oil consortiums doing business in Kazakhstan to hire a certain percentage of locals. The rules have dismayed the consortiums, which complain that Kazakh petroleum-engineering graduates, for example, possess 30-year-old skills that are unusable in today’s industry environment.

-- Kazakhstan’s membership in the Customs Union has made the country’s effort to join the WTO more difficult. Being a member of the regional bloc means that not only must Kazakhstan’s national trade policies conform to WTO requirements, but that Customs Union-wide policies must conform as well.

Government leaders in Astana have the power to change Kazakhstan’s policy themselves, of course. But changes in Customs Union policy require the approval of Russia and Belarus, too.

At one time Kazakhstan thought it could achieve WTO membership this month. The new target is a year from now -- December of 2013.

-- The European Union is the last of the big world economies that Kazakhstan has failed to forge a bilateral trade agreement with. A country seeking WTO membership must first conclude a bilateral trade agreement with each WTO member that requests one. After that, the applicant must negotiate multilateral agreements -- pacts with several countries at once.

A bilateral agreement with the European Union is doubly important for Kazakhstan because the EU is its biggest trading partner and investor. Forty percent of Kazakhstan’s trade is with the EU, according to Ruslan Sultanov of the government’s Center for Trade Policy Development. Twelve years ago, 20 percent of the country’s trade was with Russia. By 2010 that figure had fallen to 5.4 percent.

A major stumbling block to an EU-Kazakhstan agreement is the export duties that Kazakhstan levies on oil and minerals it sells abroad, Bordalba said. The European Union wants the duties cut back.

-- Kazakhstan has brought an escalated tariff scheme to its bilateral negotiations with WTO members, according to Mammadov of the U.N. Conference on Trade and Development. That means it has asked for low tariffs on imported raw materials, higher tariffs on semifinished imports and even higher duties on finished products.

-- Russia’s entry into the WTO in August of this year has reduced hundreds of Customs Union tariffs that many Kazakhs had considered too high. When the Customs Union was formed three years ago, the bloc adopted 92 percent of Russia’s tariff regime, whose rates were much higher than Kazakhstan’s or Belarus’.

This led to outrageous tariffs in some situations. For example, the import duty on used cars from non-Customs Union countries was 100 percent in many cases. On July 1 of 2010, Kazakhs found themselves facing imported used-car prices that were double what they had been paying. The reason was that Russia had insisted on high tariffs on auto imports to protect its uncompetitive industry.

Before the Customs Union, Kazakhstan’s average import tariff was 6.2 percent, according to Atameken’s Oshakbayev. Now it’s 11.4 percent, he said.

Since Kazakhstan imports many of its products, the tariff surge has hurt consumers.

When Russia joined the WTO, it agreed to an average tariff rate of 7.8 percent – or 32 percent less than the Customs Union average of 11.4 percent.

That prompted the Customs Union to roll back 1,100 tariffs in October of this year, according to Dorsati H. Madani, the World Bank’s senior economist for Kazakhstan.

When Kazakhstan joins the WTO, its “tariff structure will change again, potentially substantially,” she said.

-- WTO membership will give Kazakhstan a mechanism for dealing with other Customs Union members’ dumping – or selling products below cost – in Kazakhstan’s market, Atameken’s Oshakbayev said.

He noted that Belarus sells powdered milk in Kazakhstan for 50 tenge per liter while Kazakhstan producers must charge 90 to 100 tenge per liter to be profitable.

WTO rules would allow Kazakhstan to begin anti-dumping investigations against countries suspected of selling below cost in its market, including its Customs Union partners.

-- Kazakhstan must do more to reduce the time and cost of clearing trade transactions, Oshakbayev contended. He said an export clearance here requires nine documents and an import clearance 12.

And the situation has worsened since 2011, he complained. It takes a day and a half longer and several hundred dollars more to clear a trade than a year ago, he said. The conclusion that a number of conference participants drew was that the step backward was a result of Customs Union standardization of trade-clearing procedures.

-- Russia has violated so many WTO agreements since joining the organization four months ago that some members are considering filling trade complaints against it, according to two knowledgeable sources at the conference who asked not to be identified.

A trade complaint against a country that has just joined the WTO would be unprecedented, the sources said.

Unfortunately for Kazakhstan, some of Russia’s WTO violations are rooted in the Customs Union, the sources added.

For example, the Customs Union has begun an anti-dumping investigation into German, Italian and Polish auto sales in the Customs Union countries. Neither Kazakhstan nor Belarus has a domestic auto industry, but Russia has a huge one that’s foundering because it’s unable to compete against foreign makers.

Trade experts in the West view the Customs Union’s anti-dumping investigation as a Russian attempt to give its auto industry time to become competitive.

Since Russia is the dominant power in the Customs Union, it’s a foregone conclusion that the Customs Union investigation will find Germany, Italy and Poland guilty of dumping cars in Russia, Kazakhstan and Belarus, the two conference sources said.

But a trumped-up, self-serving investigative finding would violate WTO anti-dumping rules – and thus open the Russians to a trade complaint from the European Union, the sources said.


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