Joining the Customs Union: The Dilemma of Kyrgyzstan

The issue of joining the Customs Union of Belarus, Kazakhstan, and Russia (CU) is subject to hot debates in Kyrgyzstan and Ukraine. Kyrgyzstan as the member of WTO benefited from re-export of Chinese goods mainly to Kazakhstan, Russia, and Uzbekistan due to its membership in EURASEC. The establishment of the Customs Union led to serious changes in trade relations among EURASEC countries. The re-exports from Kyrgyzstan become the topic of the discussions on the high-level meetings of the Customs Union officials and as the result Russian customs officers will be involved in customs control procedures on borders between Kazakhstan and Kyrgyzstan. Another major challenge for Kyrgyzstan is the increase in tariffs for Russian oil and oil products exports which are employed by Moscow for greater bargaining power in the Customs Union negotiations. Although most of the western oriented media coverage of the Kyrgyzstan’s dilemma in joining the Customs Union presents this issue as the Moscow attempt to gain more influence, there are some economic aspects that should be considered first.

 

The mainstream neo-classical economic analysis views regional economic blocks as the “second best alternative” for economic growth. Therefore, the membership in WTO is always preferred to the membership in other regional blocks. But this logic best suits the interests of the more industrialized countries which benefit from exports to underdeveloped WTO member countries not encountering with any serious barriers. China’s dominance in consumer products sector of the Kyrgyzstan’s economy can be seen as an evidence of this. After thirteen years of the membership of Kyrgyzstan in WTO there were no serious technology transfers or investments in production sector from any of the WTO member countries. The only benefit was the opportunity to re-export Chinese goods to other members of EURASEC through huge markets established in Kyrgyzstan like Dordoi[1].

The Customs Union project has the goal to improve local industries through combination of free trade facilitation among member countries and some level of protection from non-members. Such intentions of the CU member countries are clear from their positions in negotiations. Russia puts enormous pressure on Kazakhstan and Belarus to raise tariffs for cars imported from non-member countries in order to expand market for its car producers. Kazakhstan launched the international center of boundary cooperation "Horgos" project on the Kazakhstan and China border which will start its operations on July 1, 2011[2]. It is planned to extend the project to Special Economic Zone for production of goods from raw materials and parts which will be imported from China. Belarus anticipates easier exports of its heavy machinery and agricultural goods to the CU market.

The flow of re-exports of Chinese goods through Kyrgyzstan is the serious obstacle to the above-mentioned industrial development policies of the CU members. Therefore, the pressure faced by Kyrgyzstan is not purely Moscow’s foreign policy issue but logical response of the CU member countries wanting to change own places in the World economy where Russia and Kazakhstan are the suppliers of natural resources and the consumers of value added goods from industrialized countries.

Moreover, Kazakhstan is a major export destination for agricultural goods produced in Kyrgyzstan and Russia is a major destination for thousands of Kyrgyzstani labor migrants. As the member of the CU, Kyrgyzstan will gain more bargaining power in promoting of its exports and in improving its migrant citizens’ working conditions in CU member countries. The full membership will also decrease the influence of Russia in CU decision making process which is now equal to 57 of total 100 votes in the Commission of the Customs Union, the supra-national body of the CU.


[1]Shestakov I. (2010), The end of Kyrgyzstan as the regional center for re-exports. Retrieve May 02, 2011 from http://kyrtag.kg/?q=news/472

[2]Lemeshev S. (2011), Six months before the start. Retrieved May 02, 2011 fromhttp://www.kazpravda.kz/c/1293013955

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Horizon Research Center ©, May 2011, Almaty

 

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