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Thursday, September 19th, 2019

Kazakhstan in WTO: what changes have taken place in 4 years

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In an interview with Kazakh Vice Minister of Trade and Integration Zhanel Kushukova, the Strategy2050.kz news agency digs into major changes in Kazakhstan’s trade following WTO accession. The interviewee speaks about how Kazakhstan shapes e-commerce as well as the implications of America’s intention to withdraw from the WTO and the U.S.-China trade war.

It is widely known that the WTO is not an integration grouping but serves as a compendium of rules binding upon its members. These rules ensure that the key principles of global trade are applicable to Kazakh commodities and non-discriminatory access to markets of countries and customs territories belonging to the WTO.

The only way to determine the WTO rules’ good practices is through exports of processed goods and services, since foreign countries have a stake in Kazakhstan’s commodity imports with no WTO rules.

To have more tradable products and extend non-commodity exports from Kazakhstan, the Government puts comprehensive efforts into stimulating output while carrying out respective development programmes. Today, the State Programme of Industrial and Innovative Development, the 2020 Business Roadmap, the National Investment Strategy as well as the National Export Strategy up to 2018-22 are in place.

The 2018 exports of goods and services from Kazakhstan stood at $68.3 billion, growing by 24.2 per cent over 2017 ($55 billion), with the surge in oil prices being a major cause. Of which the exports of downstream products and services amounted to $23 billion, up by 4.1 per cent compared with 2017. The rise was largely due to a 0.9 per cent increase in non-primary exports reaching up to $15.7 billion and a 12.3 per cent growth in services exports to $7.3 billion.

The major consumers of Kazakh processed commodities are China ($3.4 billion, 21.3 per cent), Russia ($3 billion, 19.2 per cent), the Netherlands ($1 billion, 6.3 per cent), Uzbekistan ($0.9 billion, 5.9 per cent), Great Britain ($0.8 billion, 5 per cent), Turkey ($0.7 billion, 4.2 per cent), Japan ($0.6 billion, 3.7 per cent), Kyrgyzstan ($0.5 billion, 3.4 per cent), the UAE ($0.4 billion, 2.6 per cent) and Afghanistan ($0.4 billion, 2.6 per cent). They represented 75 per cent of the total exports of Kazakh processed goods in 2018.

The country’s non-primary exports pattern consists mainly of:

steel products (pipes, rolled metal, steel constructions, alloys, metals and others) to the tune of $8 billion (51% of non-primary exports);

chemical products (uranium and fertilizers) in excess of $2.4 billion (15.4 per cent of non-primary exports);

oil products ($2.2 billion, 14.2 per cent);

foodstuffs ($1 billion, 6.5 per cent);

machinery products ($486 million, 3.1 per cent);

transport ($202 million, 1.3 per cent);

plastic and rubber items ($120 million, 0.8 per cent);

services exports rose by 12.3 per cent in 2018, reaching $7.3 billion.

Services exports were heavily concentrated on transport services (54.7 per cent, $4 billion) in 2018, for example:

pipeline transport services amounting for $2.3 billion (57.5 per cent of the total exports of transport services);

rail transport for $707 million (19.3 per cent of the overall transport services exports);

air transportation for $639 million (16 per cent of the overall transport services exports).

Tourism is the second largest services category, with 30.9 per cent totalling at $2.3 billion.

We should emphasize here the upturns in business services ($0.5 billion, 6.3 per cent) and the telecom services sector ($122 million, 1.7 per cent).

The major foreign consumers of Kazakh services include: China ($2.4 billion, 32.9 per cent of the overall services exports), Russia ($1.5 billion, 20.5 per cent) and Uzbekistan ($569 million, 7.8 per cent).

– What is the share of trade in a GDP? Tell us about price changes and effects on inflation?

– Statistics Committee and State Revenues Committee data show that Kazakhstan’s 2015 foreign trade turnover (before joining the WTO) was $76.5 billion, with an essential part of exports of $45.96 billion or over 60 per cent of the trade turnover, while imports were 40 per cent or $ 30.57 billion.

The trade balance was $15.4 billion. However, due to sinking oil prices on world markets in 2016 ($36.4 per barrel) Kazakhstan’s trade turnover reached its lowest level ($62.1 billion). It is worth noting that the subsequent years saw Kazakhstan’s foreign trade grow. Between 2016 and 2018, the Kazakh trade turnover’s growth was 23.8 per cent reaching $94.8 billion, including 61 billion dollars exports and 33.7 billion dollars imports. The trade balance was positive, showing over $27 billion.

According to the National Bank, Kazakhstan’s 2018 GDP figure was $172.9 billion, with trade contributing 54.8 per cent to the GDP.

Trends in inflation have improved in the last 4 years as there has been the downward trend in annual inflation since 2015. 2018 saw the inflation rate of 5.3 per cent remaining within the target corridor. The annual inflation rate in July this year has been 5.4 per cent with the target of 4-6 per cent.

Inflation is influenced by some monetary and non-monetary factors, including the exchange rate, base rate, rising inflation in major foreign trade partners, rising wages, seasonality. We also monitor and take comprehensive steps maintaining food prices.

The amendments to the domestic trade rules took effect providing for trade margins for socially significant foodstuffs at least 15 per cent.

A ban on compensations (retro-bonuses) collected by trading networks from suppliers of food has been introduced. And, the compensation celling of up to 5 per cent for other foodstuffs has been set.

The model rules for implementing stabilization mechanisms for foodstuffs prices took effect. Governor’s Offices, social business corporations can provide operating funds to trade networks in return for foodstuffs’ price maintenance. Also, social business corporations’ procedures for developing stabilization fund reserves have been simplified.

There are regional stabilization funds carrying out commodity interventions in the relevant region if prices rise or supply reduction.

Wholesale distribution centers are showing up across the regions destined to purchase vegetables and fruits directly from producers at harvest time and sell them during periods of higher prices.

– What has been changed in trade since Kazakhstan’s WTO accession?

– Kazakhstan has improved the customs regulation and administration as well as the balances of the interests of the entrepreneurs and the interests of the State since joining the WTO.

There has been the transition from the paper based to the electronic customs administration. The human factor is no longer plays a pivotal role when making decisions thanks to information systems, release of products is faster. In early 2019, the Single window for export and import transactions has been in place, allowing participants of foreign trade activities to receive and provide all necessary papers to run export or import transactions in one place thus saving those time and financial expenses and improving terms of trade on the whole.

Since Kazakhstan’s accession to the WTO, state assistance in agriculture of Kazakhstan has become static. While the main trend in the country’s agriculture sector under the WTO is the active work aimed at reducing inefficient subsidies and switching to the State support instruments reflecting the principles of the WTO green basket and as experienced by the Cairns Group.

In line with Kazakhstan’s commitments in the WTO, Kazakhstan is not permitted to use prohibited measures of State support for agriculture. Kazakhstan retains the right to provide State assistance for agriculture in an amount equal to 8.5 per cent of a GDP in the amber box. Just for the record, Kazakhstan and China are the only countries to negotiate grants at 8.5 per cent in the agro-industrial complex sector. Moreover, considering grants at around 4 per cent are available under the agriculture support programmes to date, we are able to significantly scale up this support without violating the WTO commitments.

To give effect to the principle of change towards the green basket, Kazakhstan pays great attention to shift inefficient grants towards the financial instruments for actors in agricultural sectors as follow: automatization of all farming processes, cost recovery when investing, cheaper bank credits for persons active in the agro-industrial complex, rolling out agrarian (commercial and financial) vouchers, a developed guarantee mechanisms and insurance system in crop production, transition to index-based insurance, reduced loan debt burden, electronic distribution of concessional diesel fuel, development of credit unions.

– The 2018 WTO report is devoted to the future of international trade, including global trade’s digital transformation. How Kazakhstan develops e-commerce and what programmes are designed in this area?

– The e-commerce market is advancing at a very rapid pace in Kazakhstan, growing to 269 billion tenge (imports from international electronic platforms included) by 1.5 times in 2018 compared with 2017 (174 billion tenge).

Buyers in e-commerce doubled reaching 2.3 million in 2018, with over 1 700 active online shops. There are around 20 e-commerce platforms across the country, making it possible for over 1 million actors of small and medium-sized businesses to market their products.

In order to uphold e-commerce, the country takes the following steps:

The new Tax Code provides for the steps to relieve the corporate income tax rate and personal income tax to 0 per cent of the revenue generated from e-commerce for a period of 5 years. This should be also in accordance with the electronic version of transactions; at least 90% of the total revenue should be in non-cash form, the presence of a courier service for customers or the existence of treaties with a courier service.

There are fulfillment centres in the confines of KazPost providing logistics services from admission and storing all the way to delivery to a final user;

Almaty, Nur-Sultan, Karaganda and Shymkent have e-commerce centres, where more than 1 500 representatives of small and medium businesses were taught the basics of starting and running e-business in 2018.

On 2 April 2019 Head of State Kassym-Jomart Tokayev signed a law amending some legal acts relating to the development of business environment and the regulation of commerce. The law expands the concepts of e-commerce as well as their provisions.

The consumer right protection in e-commerce remains the same as in traditional commerce, that is, e-commerce is subject to the rules of law relating to consumer rights protection.

To boost e-commerce development, the 2019-25 e-commerce development roadmap was adopted, which consists of 31 steps covering three main areas:

1. Promoting e-commerce exports;

2. Engaging local entrepreneurs in e-commerce and infrastructure development;

3. Sound consumer rights protection.

All the efforts made aim at removing barriers to e-commerce in Kazakhstan.

– Kazakhstan is a member of the Customs Union and the Eurasian Economic Union. Are there any discrepancies among these groupings?

– In preparation for Kazakhstan’s admission to the WTO, the national regulations, including the ones at the Customs Union level, the changes were made to conform to the WTO standards.

For instance, in the veterinary control and supervision, with a view to aligning the Customs Union’s treaty and legal basis in terms of its veterinary and sanitary measures and the international standards, guidelines and recommendations; to address undue administrative barriers to international and mutual trade, the new version of the provision on uniform standards for joint verification activities and sampling (products) subject to veterinary control (supervision).

In negotiations on WTO accession, Kazakhstan made a commitment different from the treaty and legal basis of the Customs Union. Thus, Kazakhstan is free to negotiate bilateral veterinary certificates for goods entering the Kazakh territory under the format Kazakhstan-third country. Such certificates imply that entered goods should circulate only within Kazakhstan.

EAEU regulations hold that the entry of products subject to control into the EAEU’s Customs Territory from the third countries is possible with the veterinary certificate issued by the competent authority of the country of origin. The veterinary certificate is issued using a uniform format approved by the Customs Union Commission’s decision no.607 On formats of uniform veterinary certificates for products subject to control entering the territory of the Eurasian Customs Union from the third countries of 7 April 2011, or under the EAEU-third country format that any EAEU country’s authorized bodies may reconcile bilaterally with the competent bodies of the third countries.

Thus, the products either with the unified veterinary certificates or bilateral veterinary certificates under the EAEU-third country format are allowed to circulate throughout the EAEU, whereas the products entered in accordance with Kazakhstan’s WTO commitments is permitted only within Kazakhstan.

As part of that commitment, Kazakhstan should ensure that prevent the movement of the products with bilateral veterinary certificates under the Kazakhstan-third country format to the territories of other EAEU members. It has developed and introduced the traceability system enabling Kazakhstan to observe the guarantees granted to other EAEU members as well as to fulfill the WTO commitments.

Another huge discrepancy in Kazakhstan’s WTO commitments is exemptions from the EAEU unified customs tariff. Kazakhstan completed the bilateral market access negotiations in the WTO before the establishment of the Customs Union, therefore consolidated tariff commitments for Kazakhstan differ from the Single Customs Tariff rates the EAEU member States subject to.

The negotiations with the WTO members, Russia and Kazakhstan on aligning the tariff commitments ended in Kazakhstan applying temporary exemptions from the EAEU unified customs tariffs until the rates are agreed upon by willing members of the WTO and incorporated in the EAEU unified customs tariffs. Negotiations to align the tariff commitments may begin once Kazakhstan shifts to the final import customs duties by reference to the obligations specified in Kazakhstan’s list for items.

So, the list of items subject to the rates of import customs duties in accordance with Kazakhstan’s commitments made as part of its accession lower compared to the rates of the EAEU unified customs tariffs has been drawn up.

The protocol regulating the entry into and movement throughout the EAEU territory of the items that in accordance with Kazakhstan’s WTO accession commitments will be imported to Kazakhstan at reduced rates of customs duties took effect on 11 January 2016. It says the items that entry the Kazakh territory at reduced customs duties rates are for the domestic market only, that is, if such items are shipped to other EAEU countries, the importer has to pay the import duties at the rates of the EAEU unified customs tariffs when entering the Kazakh territory.

To put it other way, Kazakhstan committed to preventing re-exports of goods entered at the lower customs duties to other EAEU countries.

Currently, import customs duties below the rates of the EAEU unified customs tariffs cover 2 916 tariff lines (the EEC Council’s decision of 14 October 2015 no.59, the Kazakh National Economy Ministry’s order of 19 December 2018 no.105).

– Tell us about the implications of the trade war between the U.S. and China on international trade? Amid U.S. President Donald Trump’s threats to walk out of the WTO, how is this going to affect the Organization and its members?

– The U.S. and China have been retreated into protectionism in terms of imports between each other since March 2018, by introducing import customs duties largely imposed by the United States.

As of today, the amount of Chinese items subject to import customs duties by the U.S. equals $250 billion, while goods exports from the U.S. to China on which import duties have been imposed estimate at $110 billion.

On top of that, the U.S. intends to levy additional 10 per cent duties on goods from China for around $300 billion from 1 September and 15 December 2019. While China suspended purchases of agricultural products from the U.S. as well as reduced its national currency rate below 7 yuans per dollar.

The trade war between the two States has already slowed down the global economy, with China’s economy facing the decline of 6.2 per cent in the 2nd quarter of 2019 in lieu of the projected 6.3 per cent. China’s economic slowdown will diminish consumption of raw materials, including those exported from Kazakhstan.

Rising import duties could change import flows from the U.S. and China to other countries, including the U.S. could increase poultry imports to Kazakhstan thus challenging domestic output.

However, the tariff war among the U.S. and China has a silver lining too, with Mexico, Taiwan, South Korea, Japan and Canada increasing exports of data handling and storage devices, electric wires and fibre-optic cables, computer chips and motherboards to the U.S., while Australia, Switzerland, Brazil, Hong-Kong and Canada expanding exports of gold, gas, cotton, soy beans to China.

Kazakhstan could also benefit from the current situation with China cancelling agricultural products imports from the U.S., thus expanding its exports. Kazakhstan exports around 50 per cent ($7.6 million in 2018) of its global soybeans exports, compared with China’s $38.1 billion worth soybeans imports in 2018, including imports of $7.1 billion from the U.S.

Globally, further rising duties, a continuous nature of the trade war carry some risks of uncertainty, volatility of national currency that weaken the economy, reduce trade, higher prices for imported goods and consequently the loss of purchasing power.

The U.S. represents around 11 per cent of global trade; therefore the U.S. abandoning the WTO would be a major shock to the global economy and the country too.

In situations where there are no need to adhere to the fundamental principles of the WTO, including most-favored nation treatment and national treatment, both the U.S. and the WTO members will be able to make use of any trade protection instruments in mutual trade, including high duties, quantitative restrictions, restrictions on the entry of goods as well as other discriminatory measures.

This situation could escalate the ongoing trade tensions among the countries and the U.S., rise protectionism, drops in market shares, changes in the exports and imports geography, rise in production costs caused by a failure to buy parts at an affordable cost and that sort of thing.

The discussion on World Trade Organization reform is intensifying as the Organization’s smooth functioning is of growing concern among its members. Agreements on early reform of the WTO were reached as part of discussions at the G20 site in September 2018, and the G7 site in 24-26 August this year.

Source: Kazakhtan 2050

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