Economic Relations between Kazakhstan and Russia

The weighted average percentage rate for auction credits amounted in
1994 to 292.61 percent; during ten months of 1995, it went down to 103.29 percent, and in October 1995 it stabilized at the 52.56 percent level.

In 1995, the reduction in production output amounted to eight percent.
Production output fell at 44 percent of enterprises. Of the 220 most important kinds of industrial products, production of 48 kinds increased and that of 167, decreased. It should be noted at the same time that hi
1995 decline in production was overcome, and there was an increase in production compared to the previous year in electric power production, metallurgy, and in the chemical and petrochemical industries.

In 1995, the policy of liberalization of foreign trade activity continued; distribution of export quotas was completely eliminated, and the list of licensed export products was considerably reduced. Kazakhstan traded with 124 states of near and far abroad.

In the framework of official aid for development, Kazakhstan received a number of credits to the tune of $1.3 billion from international financial organizations and individual donor countries.

One of the main types of foreign resources for the republic was direct investment, in particular the setting up of joint ventures and foreign enterprises. The rate of establishment of joint ventures in Kazakhstan is fairly high. Thus, at the end: of 1990 there were just 15 of them, while at the end of 1995 more than 2000. JVs operated in the republic, of which 500 operated on foreign capital only. Most of these were set up in the; mining industries.

From the beginning of 1995, steadily increasing numbers of enterprises were turned over for administration. Toward the end of December 1995, external administration was introduced at some 20 major industrial enterprises in various sectors. The necessary legislative basis was created for the involvement of foreign capital in Kazakhstan.

Thus the implementation of economic policies in 1992-1995 in Kazakhstan resulted in the liberalization and openness of the economy and the expansion of private enterprise.

There were significant shifts in the market infrastructure. Trade and the banking sector developed rapidly, and other financial institutions were born - in other words, there was, progress in those spheres of the economy that had previously; been underdeveloped but that were vital for the functioning of the market economy.

The liberalization of foreign and domestic trade resulted in a slight reduction of export in 1994 and early 1995 compared to the decline in the volume of GDP. The export of commodities, mostly to CIS countries, amounted to $13 billion in 1994 and $4.97 billion in 1995. The greatest share of exports went to the Russian Federation — 47 percent, or $1.4 billion's worth in 1994; in 1995, the exports amounted to $2.8 billion, including
$2.1 billion to Russia.

Russia's share in Kazakhstan's imports from CIS countries at the beginning of 1995 was the largest - 70 percent; Turkmenistan's, 10 percent; and Uzbekistan's, 9 percent. Of considerable significance is the fact that more than 50 enterprises securing Russia's defense interests work on
Kazakhstani territory. All principal roads of Russia leading east and southeast, Yuzhsib and Transsib railways included, pass through Kazakhstan.
Major Russian high voltage power lines, communications lines, and pipelines are also connected with Kazakhstan.

As before, Kazakhstan's exports to Russia are raw materials, oil and petrochemical products, as well as products of ferrous and non-ferrous metallurgy.

Deliveries of ferrous metals (35.2 percent), copper and items made of copper (15.1 percent) make up a considerable share of exports. Russian enterprises are also the main consumers of Kazakhstan oil and petroleum products, which amount to 40 percent of the exports of mineral products.

In 1994, Kazakhstan's imports of industrial and technical goods and of consumer goods from the far and near abroad amounted to $3.4 billion; in
1995, the figure was $3.7 billion. The largest share of imports fell on
Russia - $1.3 billion and $1.8 billion respectively. Imports from Russia covered 30 percent of the demand of households and the republic's enterprises for raw materials, 70 percent of the demand for industrial manufactured products (including 90 percent of the demand, for complex household appliances), and more than 70 percent of the * demand for products of the chemical and timber industries. Kazakhstan's imports from
Russia are dominated by electric; machines, equipment, mechanisms, and, transport vehicles. Their share in over imports amounts to 70-percent.
There are also imports of considerable amounts of raw materials for the foodstuffs industry and the foodstuffs themselves (10.2 percent), mineral products and metals (10.1 percent), and other consumer goods (7.8 percent).
More than half of imported mineral products and non-ferrous metals come from Russia.

The share of deliveries against convertible currency in the export- import operations between Kazakhstan and Russia amounted to 6.5 percent of the total volume of exports; the share of baiter operations was 32.6 percent; and the share of clearing and similar operations, 60.9 percent. In this process, baiter deals did not as a rule result in a balanced and equivalent exchange. Analyses of export-import barter deals in 1993-1995 shows that total exports were twice as large as imports of commodities. As a result of these operations, considerable funds of Kazakhstan Commodity producers annually stay in Russia.

On the whole, the results of economic development show that the republic was close to achieving macroeconomic stabilization, that the impact of market incentives increased, and that a new system of reference points and motivations developed. The main problems of the critical period of development were partially solved, but new ones emerged.

Harsh monetary and credit policies, liberalization of the domestic and foreign markets promoted the formation in the republic of market mechanisms for the regulations of the economy and for ensuring equal possibilities and guarantees for all the agents of economic activity. In this situation the possibility appeared of creating a common economic space covering
Kazakhstan and Russia, in which free circulation of commodities, capital, and labor would be made possible.

The development of Kazakhstani-Russian relations between 1991 and 1995 showed that the two states adopted a great many documents covering a wide range of economic issues.

The implementation of these agreements created favorable conditions for establishing economic links between economic agents and for the development of a common market that would be advantageous for the economic interests of both Kazakhstan and Russia.

The relations between the two countries in the economic sphere developed, against the background of improving multilateral cooperation: within the CIS framework. The legal basis for this, process was the treaty on the jetting-up of the CIS Economic Union signed on September 24, 1993.'
This document proclaimed as the main goal a voluntary, stage-by-stage re- creation, on new, market principles of unified economic space, or common market, with free circulation of commodities, services, capital, and labor.
On the basis of the treaty, a solid legal groundwork was created. On
October 21, 1994, an interstate economic committee was set up at a-session of the council of CIS heads of state, and a memorandum on the main directions of integration development of the Commonwealth of Independent
States was signed. These documents envisaged a stage-by-stage formation of a customs union and the possibility of movement of different countries at different speeds toward a unified economic space within the Economic Union.

A characteristic feature of the situation in the CIS is universal recognition of the need for stepping up integration processes in the economic interaction of CIS countries. It should be noted that, among CIS countries, economic relations were most intense between Russia, Kazakhstan,
Ukraine, and Byelorussia, with 80 percent of commodity circulation within the CIS taking place within these countries.

One of the basic documents on economic integration was an agreement on a customs union between the Russian Federation, the Republic of Kazakhstan, and the Republic of Belarus.1 Let us recall that on January 20, 1995 the presidents of Kazakhstan and Russia, in their joint declaration on the expansion and deepening of Kazakhstani-Russian cooperation, instructed their governments to sign an agreement on the customs union. The heads of governments of Kazakhstan, Russia, and Belarus signed this document.

The formation of the customs union was preceded by extensive preparatory work aimed at harmonizing the legislative systems of the two countries. A number of governmental and interdepartmental agreements, protocols, and joint normative acts were signed, including those on free trade, on a unified procedure for regulating foreign trade, on the re- export of commodities, on the introduction of a unified procedure for non- tariff regulation of trade with a coordinated nomenclature and volumes of licensed and quoted commodities, on the establishment of a free trade zone, on the unification and simplification of customs procedures, on collaboration between customs services, on combating illegal drugs trafficking, on the terms of maintenance of military facilities on the territories of the two sides, and on joint security measures for the protection of the external borders of the Customs Union. These agreements covered a sufficiently wide range of issues, and they formed the basis for further action.

The agreement on the setting up of the Customs Union was based on the principles of unified customs territory of the member states of the Customs
Union and the existence of a uniform mechanism of economic regulation. It is proposed to form the Customs Union in two stages. At the first stage, tariffs and quantitative restrictions on mutual trade are lifted that are envisaged in the agreement on a unified procedure for regulating foreign trade activity of April 12, 1994; fully identical systems for regulating foreign economic links, identical trade regulations, common customs tariffs and non-tariff measures for regulating relations with third countries are introduced. At this stage, work is envisaged on the unification of legislation on foreign trade, customs, currency, finances, tax, and of other laws bearing on foreign trade activities.

Agreements on the Customs Union envisage the possibility of introduction of coordinated time restrictions on mutual trade in case of shortages of commodities on the domestic market, acute payment deficit, and other circumstances.

The countries assumed the obligation to establish unified control over their customs organs and organize joint supervision of the movement of commodities and transport vehicles on the borders. The procedures for such supervision are regulated by agreements between the customs organs of the states involved.

The agreement on the Customs Union is open to all other CIS member states that will recognize the provisions of the agreement and express a readiness to fulfill them in their entirety.

The joint statement was in effect an agreement on coordinated moves for further realization of economic reform and creation of a uniform mechanism for regulating the economies based on market principles. It set the task of unification of legislation on foreign trade, customs, currency, finances, prices, taxes, and other economic laws ensuring free development of production links and of enterprise, as well as equal possibilities and guarantees for economic agents of the three states.

In that document, the heads of the governments of the three states noted the considerable progress in the creation of possibilities for a real formation of a customs union on the basis of agreements and protocols signed. The sides agreed that tariff and quantitative restrictions on mutual trade will be lifted through the setting up of fully identical systems of regulation of external economic links, unconditional guarantees for effective joint protection of the external borders of the member states of the Customs Union, and establishment of identical trade procedures, common customs tariffs, and measures for non-tariff regulation with respect to third countries. It was stressed that the development of foreign economic links will be promoted by the stage-by-stage formation of a clearing union to ensure continuous clearing on the basis of mutual convertibility of national currencies and formation of an effective payment system.

An agreement was reached to render state support to the development of direct links and cooperation between enterprises, to the establishment of financial-industrial groups, formation of favorable conditions for mutual access and protection of investment, and acquiring real estate,

Measures were outlined for the formation of a common scientific/technological space for a more rational utilization of the available intellectual, scientific, and technical potential.

State delegations headed by deputy heads of governments take part in regular monthly sittings of the commission. These sessions consider the implementation of agreements, analyze the state of affairs in the practical formation of the customs union, and coordinate joint measures.

At the same time each side set up its own national sections of the intergovernmental commission on the customs union. Five groups were set up in the framework of each national commission to cover the following areas:

1. Creation of the Customs Union. Solving tasks in the realization of a mechanism for the establishment, of a. free trade zone; working out normative acts for the unification of currency, financial, and general legislation; preparing proposals for the introduction of unified procedures for foreign trade regulation and an identical customs tariff, for coordinating a unified procedure of customs control, for working out an agreement on unified management of customs services, and so on.

2. Harmonization of legislative systems to coordinate the legal basis of agreements with agreements already achieved and to eliminate discrepancies in the economic legislative systems of the states, and to solve other issues.

3. Realization of the provisions of treaties; of friendship, cooperation, and mutual assistance; preparation of draft agreements and documents on freedom of movement, citizens' legal status, conversion, mutual debts of enterprises, and on military cooperation.

4. The development of production and enterprise. Taking coordinated measures for economic reforms, preparing agreements on scientific and technological cooperation, investment activity, state support of enterprises participating in joint financial-industrial groups.

5. In the area of finances and payment relations: the organization of work on providing regular quotations for the national currencies, on the setting up of a network of currency exchange points, on concluding an inter bank agreement on mutual access to domestic markets of authorized banks, on working out a common mechanism for currency regulation and control, on unification of taxes and their size, on the methodology of price formation, and so on.

Practically all issues have been resolved in. the framework of the three countries on non-tariff regulation of foreign trade activity; work on the unification of normative legal acts in this area has been completed. The partners came to an agreement on the procedure for registering contracts on exports of strategically important commodities.

Work is being completed on the establishment of unified operation modes in trading with countries and on re export of commodities.

Apart from bilateral agreements, the Customs: Union also relies on a number of multilateral agreements and conventions adopted by the CIS
Countries, including The Foundations of Customs Legislation, A Unified
Methodology for the Customs Statistics on Foreign Trade, On the Movement of
CIS Countries' Citizens Through Their Territories Without Visas, On
Guarantees for the Rights of Individuals Belonging to National Minorities,
On the Establishment of a Unified System of Air Defense of CIS Member
States, and On Legal Aid and Legal Relations in Civil, Family, and Criminal
Cases.

Thus the main principle on which the Customs Union is founded is the existence of a unified customs territory and a uniform mechanism for regulating the economy, based on unified legislation.

Toward the end of 1995, significant changes occurred in the trade and economic relations of Kazakhstan and Russia. The agreement was revised on trade and economic relations; the emphasis was made on the development of direct links between producers, which resulted in a considerable increase in the exchange of products. In 1995, trade between Kazakhstan and Russia amounted to $319 billion, or 54 percent of the total volume of the republic’s trades, an increase of 55.4 percent on the same period in the previous year. Exports amounted to $2.1 billion, which made up 42 percent of the total volume of Kazakhstan export; exceeding the 1994 figures by a factor of 1.5. Imports reached the $1.8 billion mark, or 49 percent of all imports, exceeding the 1994 imports by 66 percent.

Work on the formation of the Customs Union can thus be seen as one of the main achievements in the field of economic integration of Kazakhstan and Russia. A breakthrough was achieved in the establishment of a common market. The three countries established a unified customs zone and eliminated controls at their internal borders. Close businesslike links were established between the customs services.

The Customs Union brings tangible results to each of its members. The overall volume of trade between the CIS countries outside the Customs Union continued to fall, while the lifting of custom barriers enabled Kazakhstan,
Russia, and Byelorussia to considerably increase commodity circulation.

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