Treading Softly: Kazakhstan Weighs Up the Customs Union

By Yekaterina Syrtsova, Associate Account Manager, The PBN Company, Almaty

The proposed Customs Union between Russia, Kazakhstan, Belarus - and now possibly Kyrgyzstan - has received extensive coverage, with much attention focused on the impact on Russia’s accession to the World Trade Organization. However, while there are many potential benefits for Russia in terms greater access to Kazakh markets, what is in the Customs Union for Kazakhstan? A lively debated has been prompted about the economic and the political merits of going along with Russia’s proposal.

The Union is an obvious win for Kazakh industries that supply the Russian market, such as metallurgy, coal and chemicals. It will stimulate development of Kazakhstan’s Russian exports in these sectors by eliminating the customs duties they currently pay, making them more competitive. The Union will also simplify on-going issues relating to transit of Kazakhstan’s oil through Russian pipeline systems. For many years transit routes in general - and the expansion of the Caspian Pipeline Consortium in particular - have been a matter of political dispute with Moscow. That situation may now change.

There will, however, be drawbacks for the domestic market. Russian manufacturers are already well represented in Kazakhstan and will put even greater pressure on local producers, especially in agriculture and foodstuffs. In sectors like automobiles, where Kazakhstan imports from multiple countries, consumers may find themselves with less choice as Russian exports supplant, for example, Asian and European ones. Furthermore, Ford, Toyota, Renault and Hyundai already have substantial capital investments in Russia. The Customs Union means that they are likely to use existing facilities in Russia rather than establish new ones in Kazakhstan.

There are also concerns as to the likely political ramifications. Since 1996 Kazakhstan has been involved in its own WTO accession negotiations. President Nazarbayev and Prime Minister Masimov are going to have to balance carefully Kazakhstan’s WTO interests and the relationship with Russia. Some experts have warned that the Customs Union will limit Kazakhstan’s ability to pursue its own foreign policy agenda. Arguably, this view has been given credence by the way that international reaction to the Union has been dominated by Russia’s WTO bid. Kazakhstan does not want to be pulled into that sort of political dispute.

At present, Kazakhstan is taking a cautious approach to the entire Customs Union issue. If the 2010 timeline is set in stone, there are myriad details to be sorted. But given Russia’s mixed messages regarding its own WTO bid, Nazarbayev and Masimov are carefully assessing the lay of the land before they make any particular commitments.

Possibly related posts:

1. Customs Union Update: Russia’s Average Tariff Burden Could Fall Under New Union
2. The Customs Union Officially Exists
3. Having it Both Ways - Russia is Saying Yes to Both the WTO and the Customs Union
4. Policy Matters: The New Tripartite Customs Union and the Implications for Trade and Geopolitics
5. To Silence or Not to Silence: Blogging in Kazakhstan