Friday, 31 January 2020, 20:45:57
On Jan. 31, 2020, a regular meeting of the EAEU Intergovernmental Council will be held in Almaty. One of the main topics of the Intergovernmental Council of in Almaty will be the development of trade and digital integration of the participating countries. On the eve of the event, the journalists of PriemeMinister.kz collected comments from leading Kazakhstani experts on Kazakhstan's participation in the EAEU.
The EAEU was created in order to comprehensively modernize, cooperate and increase the competitiveness of the national economies of the member states. This opinion was shared by the Director of the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan Zarema Shaukenova.
“The unique geographical position and economic potential of Kazakhstan contribute to its sustainable development within the framework of the integration association and allows us to confidently realize the main goal — the free movement of capital,” she said.
According to her, the EAEU creates favorable conditions for the participating countries to achieve a synergistic effect, both from foreign economic activity and domestic economic processes. So, according to the results of the first five years, a significant increase in macroeconomic indicators is noted. The EAEU gross domestic product at purchasing power parity (PPP GDP) increased by 13%, per capita GDP — by 12%, unemployment rate decreased by 12%, investment in fixed assets rose by 19%.
In modern conditions for Kazakhstan, the development of sustainable economic relations with external partners is an important vector of economic development. The EAEU in this context opens up wide opportunities and promising directions for the growth of export potential, which ultimately affects the welfare of Kazakhstanis.
Each country has its own advantages through integration. For Kazakhstan, this means export facilitation based on common customs standards, duty-free trade, integration into global transport hubs with access to other economic macro regions of the world.
The signed agreements within the EAEU contribute to the improvement of economic relations between Kazakhstan and countries in other regions. For example, in 2016, the EAEU countries joined the first agreement on a free trade zone with Vietnam. Thus, the average annual growth rate of trade between Kazakhstan and Vietnam from 2016 to 2018 amounted to almost 13%. According to the results of 7 months of 2019, the trade between the Republic of Kazakhstan and Vietnam is estimated at more than $246 million, which is 2% higher than the same period in 2018.
Free trade zone agreements with Singapore, the largest trading hub of Southeast Asia, allow expanding the presence of domestic manufacturing products. It should be noted that the trade turnover with Singapore in 2018 amounted to more than $522 million and increased by almost 6 times compared to 2016. The share of Kazakhstan's trade turnover with Singapore in 2018 amounted to 37.4% of the total volume of trade with ASEAN member countries.
The Deputy Director of the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan Sanat Kushkumbayev, in turn, spoke about the possibility of adding new members to the Eurasian Economic Union.
“In the foreseeable future, it is possible. From the point of view of the EAEU’s development, the most logical candidates are Uzbekistan and Tajikistan. Everyone knows the discussion on the possible accession of Uzbekistan to the association. Currently, Tashkent is ready to be an observer in the EAEU and would like to analyze all the possible benefits and costs of membership. The same question is facing Tajikistan. Dushanbe is also prudently weighing all the pros and cons,” Kushkumbayev said.
In general, he believes that the accession of these countries will be beneficial for the EAEU participants, provided that the new members really join all the agreements reached. Accordingly, the question now is more about whether the potential candidates themselves consider it beneficial membership.
Senior Researcher at the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan Vyacheslav Dodonov spoke about how promising is the trade and economic development of the EAEU member countries. According to him, the development of trade relations within the EAEU is undoubtedly promising, especially considering the fact that many enterprises of these countries previously united production cooperation links within a single economic complex. A number of industries and regions still have a mutually complementary structure of production, which forms a significant part of the commodity circulation. But even without taking these relations into account, trade between neighboring states has obvious advantages due to the factors of logistics and transport accessibility, which make it more efficient.
“Trade and economic cooperation directly affects the pace of development of the economy as a whole, acting as a driver for the development of many industries. Accordingly, the influence of foreign trade on the competitiveness of the economy is also great, since this competitiveness is manifested in foreign markets, in the form of the ability of the national economic system to offer world-wide demand for a product. So there is a direct influence,” said Dodonov.
The expert also stressed that the benefits of mutual trade can be judged by the fact that it is growing, and quite dynamically. For the four full years of the existence of the EAEU (statistics for 2019 is not yet available), Kazakhstan's trade with the EAEU countries grew by 23.4%, exports — by 18.1%, imports — by 25.8%. At the same time, the growth rate of imports was above average (for Kazakhstan's imports as a whole), exports were lower, and commodity circulation as a whole was at the same level as the volume of all foreign trade of Kazakhstan.
Talking about the common financial market of the EAEU, Dodonov noted that the process of forming a common market for financial services of the EAEU is in line with the planned actions. At the Yerevan Summit last year, the Concept of Forming a Common Financial Market for the Eurasian Economic Union was adopted, which suggests that the likelihood of creating both this market and the interstate financial authority is high by 2025. The creation of such a body is provided for by the Treaty on the Establishment of the EAEU, clause 2 of Article 103, which states, “After the harmonization of legislation in the field of financial markets is completed, the Member States will decide on the powers and functions of the supranational body for regulating the financial market and establish it with its location in the city of Almaty in the year 2025." Since the decision on this body was made at the time of signing the Treaty in 2014, the ongoing process to form a common financial market is the planned one laid down in the EAEU basic document.
It is also appropriate to clarify with respect to this body that, once established, its functions will not include direct supervision of participants in national financial markets. It is assumed that this body at the first stage of its existence will analyze the financial legislation of the EAEU countries for compliance with international standards and give recommendations on their implementation, cooperate with international organizations and regulators and represent the interests of the union on international platforms. In the future, as financial integration deepens, members of the Union will consider expanding its powers, but it can be assumed that this expansion will also take a fairly long period.
As for the interests of citizens, then, according to Dodonov, they consist in simplifying access to services provided by financial companies of other EAEU countries, the possibility of gaining access to the financial markets of the Union countries, as well as improving the quality of financial services in the markets of their countries due to increased competition on them due to the arrival of companies from other states of the union.
It is no secret that Kazakhstan is a more importing country than an exporting country. What effect does the integration in the field of export bring to the country? How has the export of goods changed? Dodonov gave comprehensive answers to these questions. He named two trends typical for Kazakhstani export.
First, in general, the share of raw materials in Kazakhstani exports is significant, more than 85% of the total. About 10% of Kazakhstani exports go to EAEU partner countries. Moreover, according to the structure of those goods that we export, most of them remain, unfortunately, raw materials. So, the largest volumes are mineral products, metals and products from them (40.5% and 26.4%). At the same time, the main export flows were directed to Russia. But at the same time, the share of processed materials is gradually increasing. So, for 9 months of 2019, the share of animal and vegetable products, finished food products in the commodity structure of exports to the EAEU countries amounted to 10%; machinery, equipment, vehicles, instruments and apparatuses — 7.6%. Compared to 2018, the growth was 0.2 and 1.2%, respectively.
Second, the EAEU market is very important for Kazakhstan in terms of increasing the share of non-oil exports. We have the potential to supply high value-added goods, manufacturing goods. So, for 11 months of 2019, the EAEU share in the export of machinery and equipment amounted to 42.2%, chemical products — 30.5%, construction materials — 44.3%, shoes, headwear and haberdashery goods — 70.5%, textiles and textile products — 26.9%, metals and products from them — 20.5%, products and food products — 18.9%. However, all sorts of barriers impede the realization of their full potential. Work is underway in this direction.
According to the expert, industrial cooperation and, more broadly, investment cooperation is no less, and perhaps more important, area of Kazakhstan’s cooperation with the EAEU partners than trade, since this area makes a significant contribution to the country's urgent problem of economic modernization, its diversification and reduction of dependence on the commodity sector.
“The basis of industrial cooperation is the influx of investments from the countries of the union, the flow of which to Kazakhstan was very dynamic during the existence of the EAEU. The annual volume of gross FDI inflows increased 2.6 times in 2018 compared to 2015 and reached $1.6 billion, and the share of the EAEU countries in the gross inflow of FDI to Kazakhstan amounted to 6.4% against 3.9% in 2015. Even more pronounced is the dynamics of the net FDI inflow from the EAEU countries. The absolute volume of the annual net FDI inflow from the Union countries increased from 2015 to 2018 by 2.4 times, and the share — by 2.6 times and reached 13%. In 2019, the share of the EAEU countries continued to grow and increased to 14.2%. Thus, investments from the EAEU have thus far become one of the main sources of the formation of a net inflow of FDI. Over the years of the EAEU's existence, the volume of investments in Kazakhstan from the union countries has grown by $4.6 billion (by 66%),” said Dodonov.
In his opinion, specific examples of industrial cooperation between Kazakhstani business and companies from the EAEU include, first of all, cooperation with Russian partners, which is diversified — in contrast to other countries that occupy leading positions as investors in Kazakhstan and are mainly present in the commodity sector, Russian investments are distributed fairly evenly across many types of activities, including manufacturing.
“The traditional areas of cooperation are the oil and gas sector, where Lukoil has been operating since 1995, Eurochem is a major investor in the chemical industry, and Russian companies are present in metallurgy, pharmaceuticals, and mechanical engineering,” the expert noted.
In turn, the Chief Scientific Officer of the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan Irina Chernykh believes that integration in the field of trade and the creation of a common market for goods are one of the first undertakings of countries and dates back to the creation of the Customs Union. Therefore, the question of the readiness or unreadiness of Kazakhstan is no longer standing.
At the same time, it should be recognized that this is precisely the direction of integration that traditionally causes the greatest number of critical evaluations. One of the problem areas was the almost complete duplication of the commodity structure of mutual trade of Kazakhstan with partners in the EAEU with the commodity structure of foreign trade as a whole.
“At the same time, starting in 2018, significant diversification of commodity positions in exports to the EAEU has been recorded. An important achievement of Kazakhstani exports to the EAEU in 2019 is the increase in the share of products with a high degree of processing. Thus, despite the predominance of raw materials in Kazakhstan’s export to the EAEU countries, one can ascertain the growth of non-primary exports. This fact creates the necessary conditions for the development of the competitive potential of the real sector of the national economy,” said Chernykh.
As for Kazakhstan’s readiness for digital integration, the answer here is only positive. According to the expert, in terms of quality and pace of development of the digital economy, Kazakhstan, along with Russia, occupies a leading position in the entire CIS.
“We are not only ready to join the processes of digital integration in the EAEU, but we ourselves are also generators of ideas and developers of initiatives. So, the list of Kazakhstani initiatives includes the introduction of digital technologies for the development of the agro-industrial complex and the creation of an electronic labor exchange. Kazakhstan presented the mechanism of electronic licensing, which allows not only to automate the processes of licensing, issuing permits, but also to ensure transparency of the mechanism of information interaction between government bodies and the business community. Another initiative of Kazakhstan was the launch of the Open digital platform for small and medium-sized businesses,” Chernykh explained.
In general, the Treaty fixes the readiness of the EAEU member countries to ensure four fundamental freedoms in the EAEU space. We are talking about the freedom of movement of goods, services, capital and labor. In addition, the Agreement reflects the obligations of participants in sectoral areas of integration. Among these sectors are: a unified trade and technical regulation policy, a coordinated macroeconomic and monetary policy, a coordinated policy in the field of transport and energy, a coordinated policy in the agricultural sector, industrial cooperation, and a coordinated policy in the field of consumer protection.
“To begin with, I would note that the work to create common markets and policies is carried out in stages. So, the general market for medicines started operating in 2016 and is steadily demonstrating an increase in indicators of mutual trade in pharmaceutical products. Since 2016, the formation of a single transport space in the EAEU space has begun. Work in this direction is regulated by the road maps, which provide for the regulation of integration processes in the field of air transport, land and water transport, as well as a common transport policy. By 2025, any restrictions on transportation within the EAEU are expected to be lifted,” said the expert.
The EAEU Treaty also approves the basic principles of interaction in the framework of the development of the agro-industrial complex. It must be admitted that the question of the need for a coordinated agrarian policy arose much earlier, and some points are already reflected in the agreements on the CU and CES. However, the juridical base that existed at that time did not allow the implementation of a holistic policy in regulating the common agricultural market and food security. In order to eliminate existing shortcomings, a Concept was developed, which became the first comprehensive industry document in the history of the Union on integration interaction issues. The main provisions of the Concept were included in the Treaty on the Eurasian Economic Union. And today, integration processes in related industries, for example, the provision of sanitary, phytosanitary and veterinary-sanitary measures in relation to agricultural products, are carried out taking into account the goals, objectives and directions of the agreed agricultural policy.
As the political scientist emphasized, last year the first stage of the formation of a common electricity market has been launched. Ahead is still much work to agree on the positions of the parties, to determine the rules for the functioning of the market, etc. It is expected that a fully-fledged common electricity market will begin to function no later than 2025.
“The important points that the EAEU Treaty focuses on are the creation of a single market for services, as well as the provision of a coherent policy regarding social security for citizens of the participating countries. In particular, we are talking about the possibility of applying the national social security regime for citizens of all the countries participating in the Treaty, ensuring unhindered access to all medical services provided in the country, exporting pensions, offsetting work experience accumulated in other participating countries, etc.” said Chernykh.
The Head of the Department of Social and Economic Research of the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan Zhanna Karimova noted that the past five years have proved the untenability of fears about the viability and effectiveness of the EAEU for the participating countries.
According to the estimates of the Eurasian Economic Commission, the EAEU functions as the second most developed integration association in the world after the European Union.
“Today, we can confidently say that the EAEU creates a positive synergistic effect for the economies of the participating countries. The formation of supranational legislation, the removal of customs posts and the reduction of non-tariff barriers has become an important factor for the growth of mutual trade,” the political scientist emphasized.
Thus, the volume of mutual trade of the EAEU in November 2019 amounted to $5,628.8 million. By November 2018, its value increased by 11.3% or $572.3 million, compared to the previous month — by 5.9% or $315.6 million. For Kazakhstan, the growth rate compared to 2018 amounted to 123.7% ($598.2 million).
Participation in the integration association also opened up prospects for the growth of investment attractiveness and the development of the business environment. So, in the Doing Business 2019 ranking, the EAEU occupies 31st place. In 2019, in the Doing Business ranking, Kazakhstan improved its position and rose from 28th place to 25th.
According to the expert, in the near future, integration processes within the EAEU will gain strength. Significant attention of the participating countries will be paid to removing obstacles in the EAEU domestic market, integrating national information systems, interacting in the field of customs regulation and creating common markets.
In particular, it is about completing the formation of common markets for electricity, financial services, oil, oil products and gas. Particular attention on the part of integration institutions, government bodies and businesses will require the settlement of non-tariff barriers within the EAEU. The formation of common markets will require the maintenance of an effective macroeconomic environment, including the solution of monetary and financial issues.
In order to expand the positive effects of integration, the network of free trade zones and the number of agreements on trade and economic cooperation of the EAEU with third countries will increase.
The Head of the Representative Office of the Kazakhstan Institute for Strategic Studies under the President of the Republic of Kazakhstan in Almaty Asel Aben said that in 2015-2016, the economy of Kazakhstan passed the bottom of the crisis and headed for a gradual recovery. The increase was due to a gradual increase in oil prices, an increase in domestic investment under various state programs and an improvement in the geopolitical situation. Positive growth dynamics was shown by manufacturing industries.
In turn, the EAEU market has a positive impact on the economy of Kazakhstan. It should be noted that Kazakhstan's foreign trade volume in 2010 amounted to $91,397.5 million and $93,489.7 million in 2018 (the growth rate against the base 2010 was 102.6%). Over the same period, the growth in mutual trade between Kazakhstan and the EAEU countries amounted to 1.1%. For us, the fact that trade with the EAEU countries during the period of its operation shows growth in both commodity circulation, and export, and import is positive for us. A special achievement of Kazakhstani exports to the EAEU by 2019 is the increase in the share of products with a high degree of processing (finished products — machinery, equipment and vehicles), which significantly increases the potential for competitiveness.
In addition, solving the issue of free circulation of goods within the EAEU, the parties are actively collaborating to remove obstacles in the domestic market. Kazakhstan is actively involved and seeks to provide the necessary assistance in resolving these issues.
It should be noted that the Eurasian Economic Commission finalized the definitions of terms that are necessary to assess obstacles in the domestic market of the union.
- Barriers — obstacles to the free movement of goods, services, capital, labor within the framework of the functioning of the Union’s internal market, which do not comply with Union law. Since the barriers are a violation of the EAEU law, measures are immediately taken to eliminate them
- Exemptions — exceptions (derogations) provided for by the law of the Union on the non-application by a member state of the general rules for the functioning of the internal market of the Union
- Restrictions — obstacles to the free movement of goods, services, capital, labor within the functioning of the Union’s internal market, arising from the lack of legal regulation of economic relations, the development of which is provided for by Union law.
Exemptions and restrictions are not violations of the EAEU law and are eliminated in accordance with action plans. In order to eliminate obstacles, the Roadmap for eliminating exemptions and restrictions on the EAEU domestic market for 2018-2019 was approved. As of October 2019, the obstacle register contained 18 barriers, 38 restrictions and 14 exemptions. Implementation of activities according to the Roadmap is one of our main tasks.
As the expert emphasized, the most problematic areas associated with obstacles are technical regulation, customs regulation, and transport policy.
“Coordinated and focused work on the part of all members of the union will create a common market for goods with common requirements and, accordingly, create conditions for the unhindered movement of goods,” the political scientist said.
It is worth noting that the EAEU Customs Code entered into force on Jan. 1, 2018, its duration is still relatively short in order to evaluate the results. In general, it can be said that it does not carry revolutionary changes in terms of mutual trade or other areas, since it is the successor to the Customs Code of the Customs Union.
The new document contains a number of improvements aimed, in particular, at automating business processes at customs (priority of electronic declaration) and designed to facilitate the procedures for declaring, customs clearance and payment of duties. The improvement of the code is designed not only to reduce obstacles to mutual trade, but also to improve the conditions for the realization of transit potential.
National interests and, in particular, national legislation are consistent with the norms of the EAEU. So, in Kazakhstan, the adoption of the new EAEU Customs Code led to the adoption of the updated code "On Customs Regulation in the Republic of Kazakhstan," which implements the provisions of the EAEU Customs Code.
The union legal field affects the national laws of the participating countries. At the same time, national norms and practices to this day remain in contradiction with federal legislation. Such contradictions, in particular, in the sphere of mutual trade are recorded by the Eurasian Economic Commission, which maintains a Register of obstacles in the domestic market of the Eurasian Economic Union, which fixes all their types (barriers, exemptions, restrictions), and works to eliminate them.
Currently, the Eurasian Economic Commission has identified 67 obstacles in the domestic market of the Eurasian Economic Union, including 16 barriers, 14 exceptions and 37 restrictions. The number of obstacles in some EAEU countries is approximately the same — their maximum number falls on Russia (50), the minimum — on Kyrgyzstan (44). Kazakhstan takes the second place after Russia in the number of obstacles (48). It may be noted that most of the obstacles (44 out of 68) are applied by all five EAEU states. Thus, for the violation of the regulatory framework of the EAEU and the creation of obstacles in the domestic market of the union, almost all five countries are equally responsible.
“Our main task is to follow the chosen strategy and effectively implement the previously adopted programs. In this case, it is necessary to strictly monitor their implementation. The most important task that we strive to solve is the diversification of the economy. We already have some experience and some results; carried out two phases of industrialization, move on to the third phase. However, growth based on high productivity and innovation is not an easy task. This requires creating a high-quality education system that encourages and stimulates creativity in science, creates the conditions for innovative activity,” said Aben.
Summing up, the expert noted that successful multi-vector partnership with many countries allows Kazakhstan to reach a new level of economic development. It is only necessary to more effectively implement international experience, taking into account Kazakhstan specifics.
“Intensive work is being done to improve the investment climate and attract investment in the country, creating conditions for business development. We have a good rating at Doing Business (25th place). However, there are bureaucratic problems, problems with corruption and transparency. Some work is being done on this. According to the latest data from the rating of countries of the world on the perception of corruption, Kazakhstan has improved its position and took 114th place,” the political scientist concluded.