Because Kazakhstan is part of EEU, WTO members are negotiating with Astana, as well as with the central authority of the Russia-led trade bloc, the Eurasian Economic Commission
This article originally appeared at Business New Europe
Hopes revived last summer that Kazakhstan would be able to join the World Trade Organization (WTO) in early 2015 risk being dashed.
Remarks by the WTO Director General Roberrto Azevedo made at a Stockholm School of Economics campus in the Latvian capital Riga on March 24 reveal that Kazakhstan’s membership in the Eurasian Economic Union (EEU) – which involves being in a customs union with Russia, Belarus, Armenia and soon Kyrgyzstan – makes the process more complicated than expected.
The Central Asian oil-dependent economy is one of the few countries in the world – consisting mostly of petro-states or very weak or failed states – still outside the Geneva-based multilateral trade body.
Formally, Kazakhstan’s bid is well advanced. The country has signed most bilateral accession protocols with individual WTO members required before the WTO’s Accession Party – the group of WTO members overseeing accessions – formally agrees to accept a new member. Kazakhstan filed a new “legislative action plan” at the WTO last July, which is being revised in Geneva. “We're having some added difficulties in the process of [WTO] accession and it [is] clearly the case of Kazakhstan which is closer now to finalisation,” Roberto Azevedo told his audience in Riga.
The most difficult issue encountered last summer when talks were accelerated were the exact terms of Kazakhstan’s membership in the EEU, which came into force on January 1. The WTO’s accession working group has organised several “transparency sessions” to figure out the exact tariff levels and other trade-related rules Kazakhstan has signed up to as an EEU member.
Sanitary and phytosanitary rules (‘SPS’ in WTO jargon), such as those regarding veterinary certificates for food imports, have emerged as a key sticking point. Lack of clarity over Kazakhstan’s and EEU competence over the matter has complicated talks.
Kazakhstan also needs to agree to new import tariff reductions, especially in the area of agriculture. As a result of its accession to the customs union in 2010 with Russia and Belarus that preceded the EEU, Kazakhstan increased more than half its import tariffs.
Kazakh leaders “had undertaken with the other WTO members some commitments and promised that they would undertake a tariff profile which by the time they then decided to join the customs union – as you know a customs union requires uniformisation of the tariffs. Then that changed what they had already previously negotiated with the other members, which they were not very happy about,” the WTO director general explained.
Because it is part of a customs union, WTO members are negotiating not only with Astana on this matter, but also with the central authority of the Russia-led trade bloc, the Eurasian Economic Commission. In practice this mostly means talking to Moscow, the most powerful EEU member. Russia is not keen on liberalising import tariffs, nor on accepting WTO scrutiny on EEU SPS practices.
Russia is a WTO member and supposed to apply the body’s SPS Agreement. Though Moscow denies this, frequent import bans on food products from countries with which it is in political disagreement are often considered as politicised and contravening WTO norms.
Kazakhstan’s bid to join the WTO was launched in 1996. But a slowdown in reforms in the second half of the last decade amidst high oil prices, and Russia’s insistence it join the WTO before Kazakhstan, meant Astana took the backseat. Talks were virtually dead between 2008 and 2012.
The Ukraine crisis has revived Astana’s desire to deepen its ties with key partners outside the region, such as China, the US and EU. The recent plunge in the oil price has also highlighted the need for Kazakhstan to undertake economic reforms.
The WTO sets basic global rules for trade in goods and services and provides a strong dispute settlement mechanism. Apart from obliging members to commit to a reasonably liberal trade regime, WTO membership makes a country’s trade rules more predictable, stable and enforceable. As a result, joining the WTO is considered a useful tool to attract investors.
Accession talks with Kazakhstan have revealed how much of a headache the EEU is posing to WTO members.
Joining the EEU has meant for prospective WTO members such as Armenia, Kyrgyzstan and Tajikistan that they increase tariffs. WTO rules require that compensation is given in the form of tariff liberalisation by the customs union. These talks are extremely challenging.
“Now what we're trying to do is figure out a way of allowing Kazakhstan to harmonise its tariffs with Russia and the other members of the customs union in such a way that would still allow for this new tariff profile to be acceptable to the other members,” Azevedo said.
“Of course it involves a bunch of compensations and negotiations which are very line by line, very specific, and my understanding is that after several months, maybe a couple of years, of negotiations we're beginning to see the light at the end of the tunnel,” Azevedo concluded.