By Yernat Mukhamadiyev
ASTANA – Kazakhstan is close to joining the World Trade Organization. The road has been a long one.
Kazakhstan’s accession negotiations with the WTO have now gone on for more than 16 years. The country first applied for membership in 1996 and it is still not a member.
Long accession negotiations are not unusual in emerging market nations and former Soviet republics. Most of the nations in the Commonwealth of Independent States (CIS) have not entered the WTO yet, except for Armenia, which joined in 2003; Georgia in 2000; Kyrgyzstan in 1998; and Moldova in 2001.
It took 15 years even for China to finally become a member in 2001. Russia applied in 1993 and after 19 years of tortuous stop-start negotiations, finally entered the WTO last year.
Before the WTO was created, nations could join the previous global trade-promoting international organization, the General Agreement on Tariffs and Trades (GATT) more quickly. However, the WTO covers more policy areas than the GATT, and negotiations to join it are, therefore, far longer and more complicated.
Also, the process to join the WTO is much more political: The issues that governments need to negotiate and reform are at the heart of domestic politics. Geopolitical considerations may also be involved.
Finally, countries wanting to join the WTO are often in the process of transition from being a command economy to becoming a market economy. That transition requires a fundamental reorganization of economic and political structures.
Kazakhstan is no exception to this rule. It was a keen reformer. As some other countries that emerged from the breakup of the former Soviet Union Kazakhstan immediately embarked on radical economic reform. Its reform programme quickly changed the nature of national economy. Helped by a boom in commodity prices, reform has succeeded and been rewarded by surging economic growth. Over the past eight years the size of the economy, measured in dollars, has quadrupled, improving the quality of life for everyone.
Today, Kazakhstan is the largest economy in Central Asia. It has built a stable and prosperous economy that is rapidly catching up with the developed world. During 21 years as an independent nation, Kazakhstan has made significant progress in implementing complex political, economic and social reforms to establish a democratic state with a market economy.
Since gaining its independence, Kazakhstan has achieved positive results in many economic sectors. Over the past two decades, Kazakhstan’s economy has shown steady growth, supported by increased prices on world markets for its leading exports of oil, metals and grain. In the same period, the country’s GDP growth rates were among the highest in the world.
By 2016, Kazakhstan’s GDP per capita is expected to reach $15,000, compared with the current level of $12,200, and Kazakhstan will be classified as a “high-income economy” by the World Bank.
“We have set a task to join the club of high income countries by 2016, increasing GDP per capita to $15,000. I believe we are entering the path of sustainable economic growth of 7 percent,” President Nursultan Nazarbayev told the Fourth Economic Forum in Astana last year.
The president’s policies and the efforts of the government have enabled Kazakhstan to make a breakthrough in development and win the recognition of the international community. The country is now working hard to diversify its economy by expanding new industry sectors and to develop alternative income streams based on its wealth of natural resources. It aims to become one of the top 30 countries providing a favourable business environment by 2050, and to become one of the top financial centres in Asia by the same date.
Kazakhstan has successfully overcome the difficulties caused by the recent global financial crisis. Thanks to the government’s anti-crisis programme and the strategy of the Samruk Kazyna National Sovereign Wealth Fund, Kazakhstan managed to avoid recession.
The global financial crisis proved to be a real test that served as a good lesson for Kazakhstan. The country’s banking and real estate sectors were particularly exposed to the adverse impact of the global turmoil. However, the national economy endured these challenging times in a resilient manner and managed to retain positive growth.
The recent creation of the Customs Union and Common Economic Space with Russia and Belarus and Kazakhstan’s role in the Shanghai Cooperation Organization have confirmed Kazakhstan’s openness and commitment to being a responsible member of the global community.
Over the past two decades, Kazakhstan has made significant progress in transforming its economy to a more transparent, less regulated, more market-driven business model attractive for foreign investment.
Foreign investment plays a vital role in the economy. The government’s efforts to attract foreign direct investment (FDI) have had a major impact on development. Kazakhstan has attracted large inflows of FDI. Its main trading partners are the nations of the Commonwealth of Independent States and the Baltic countries. The United States and Russia are its largest investment partners, followed by Germany, Turkey, Italy, China, Britain and South Korea.
Kazakhstan’s favourable business climate and political stability have been major factors in encouraging the inflow of FDI. Since 1993, the country has attracted more than $147 billion into its economy.
“Kazakhstan’s economy attracted $147 billion of direct foreign investments by 2011. The country’s trade turnover in 2011 was worth $125 billion, with the trade surplus standing at $50 billion,” said Economic Integration Minister Zhanar Aitzhanova.
“We have completed all the bilateral negotiations with (the necessary) WTO member states. There are around 30 of those states. The negotiations were about access to the Kazakhstan’s markets for goods and about maximum customs duty rates applicable following Kazakhstan’s entry into the organization,” Aitzhanova said.
Kazakhstan is expected to complete its negotiations to join the WTO in the first half of 2013. However, Minister Aitzhanova who is also Deputy Chairman of the Interdepartmental Commission on Trade Policy and Participation in International Economic Organizations cautioned that it would probably take another six months to complete the full WTO entry process.
“As for the timeframe, we plan to complete all the negotiations in the first half of 2013. The final dates will depend on agreements in agriculture and in some other industries,” she said.
Aitzhanova said several issues have still to be resolved and the 2012 year-end deadline to complete the process created pressure on negotiators. However, the conditions of the agreement are of such importance for Kazakhstan that it is important to get them right, even if the talks have to be completed in the first quarter of 2013, she said.
The history of CIS nations joining the WTO strongly suggests that support from Europe and the United States is a major factor in successful negotiations. As the entry processes for Georgia and Ukraine showed, more than domestic resolve is required.
Support from major powers is also a crucial condition to accelerate the accession process. Ukraine enjoyed full support from the European Union for its entry process.
Kazakhstan has been building strong bilateral agreements with WTO member states before joining the global trade body. In 2012, the United States Trade Representative office stated their support for their growing trade and investment relationship with Kazakhstan, noting the bilateral agreements on goods and services reached in 2010 and 2011. This meant that the United States gave its support to Kazakhstan’s bid to join the WTO.
“We fully support Kazakhstan’s accession to the WTO. In fact, the U.S. Trade Representative staff worked closely with Minister Aitzhanova and her staff to implement Kazakhstan's accession to the WTO as soon as possible,” Elizabeth Millard, the U.S. deputy chief of mission in Kazakhstan said.
Millard said trade between Kazakhstan and the United States has always been a vital component of their bilateral relations. Kazakhstan's accession to the WTO would only increase it, she said.
Millard said joining the WTO would make products from Kazakhstan more competitive in world markets, leading to increased domestic production and many new jobs.
“At the same time, foreign products will become more competitive in Kazakhstan, which will significantly increase the choice of customers in Kazakhstan,” she said.
When Kazakhstan created the Customs Union with Russia and Belarus, Russia announced that when it joined the WTO, it would support the entry of its two CU trading partners as well. On Aug. 23, 2012, after nearly 20 years of waiting, Russia joined the WTO and the head of Russia’s Foreign Ministry formally announced that Moscow would give its full support for Kazakhstan’s entry by the end of 2012. Therefore, the United States and Russia both now strongly support Kazakhstan’s entry into the WTO. This means the country is sure to become a full member-state by early next year.
Kazakhstan applied for WTO membership in 1996, following the application of Russia in 1993. The two countries are bound together by geography, history, and more recently, by a common declared interest in forming the Customs Union and Common Economic Space. It was widely recognized that Russia would join the WTO first and that Kazakhstan would in due course follow.
“For us, for Kazakhstan, it is very important that Russia enters first, as all our transport corridors to Europe go via Russia,” President Nazarbayev said.
“If Russia does not enter, we will be in Kyrgyzstan’s position. Kyrgyzstan is surrounded by non-WTO countries,” the president said. “There is an agreement between Kazakhstan and Russia that as soon as Russia enters the WTO it will support our entry in all aspects. I consider it normal that Kazakhstan enters the WTO after Russia. And this will in no way affect our Customs Union.”
Kazakhstan has completed its WTO accession bilateral negotiations with the European Union. The results of these negotiations have been sent to EU member states for coordination and a respective protocol is to be signed by the end of the first quarter of 2013. In 2012, President Nazarbayev hosted European Union High Representative for Foreign Affairs and Security Policy and Vice-President of the European Commission Catherine Ashton in Astana for talks. They discussed prospects for strengthening trade and economic relations between Kazakhstan and the EU. Ashton said the EU supported Kazakhstan’s efforts to join the WTO and that it backed President Nazarbayev’s initiatives on regional integration.
In 2012, the European Union was the main trade and investment partner of Kazakhstan for the sixth consecutive year. From 1993 to 2012, the inflow of direct investment from the EU in the economy of Kazakhstan amounted to $70 billion.
Kazakhstan has already completed WTO bilateral negotiations on market access for goods and services with Kyrgyzstan, Georgia, Pakistan, Turkey, China, Korea, Oman, Japan, Kenya, Mexico, Norway, the Dominican Republic, Bulgaria, Switzerland, Egypt, Israel, Brazil, Malaysia, Canada, Australia, India, Ecuador, El Salvador, the United States, Guatemala, Argentina and Saudi Arabia.
Because the accession process to join the WTO can be long and wearing, individual countries must decide whether the gains to them from WTO membership are worth the effort.
Most experts agree the gains of WTO membership are worth the long process of joining it. However, Prof. Murat Laumulin, chief researcher at the Kazakhstan Institute of Strategic Research disagrees. He argues that no CIS nation needs to enter the WTO at all.
Laumulin claims WTO membership offers the former Soviet republics nothing more than political prestige and an improved image on the global scene.
“All the major players stick to their own economic policies regardless of what they are required to do by the WTO regulations and obligations. The European Union shields itself with rate barriers and the United States conducts trade wars. If they had truly followed the WTO’s principles, the situation that we see today would not exist,” he said.
Other experts disagree with this assessment. Kulyash Turkeeva, senior researcher on globalization at the Economic Institute of Economy of the Ministry of Education and Science said Kazakhstan will be unable to develop its trade relations independently unless it joins the WTO.
“The prospects of WTO accession are based on the expansion of trade that will follow. WTO membership gives our businessmen the chance to strengthen their positions. The economy will develop in the competitive environment. State programmes must be involved in this process,” Turkeeva said.
“It takes a long time to join the WTO,” she said. “We have been trying to do so for more than 16 years. WTO membership has both minuses and pluses. As a whole, I consider joining it to be positive. Many consider there is no need to join the WTO but we can’t exist separately from the whole world. We will be unable to develop our trade relations independently.”
Vice-Prime Minister Kairat Kelimbetov said Kazakhstan would attract more investors after entering the WTO.
“We expect to attract many investors when Kazakhstan joins the WTO thanks to a more attractive investment climate,” he said.
Kazakhstan’s entry into the WTO will boost an already fast growing economy and help make Central Asia a world leader in trade and investment.