Kyrgyzstan and the Eurasian economic Union: "honeymoon" coming to an end?
Material posted: Publication date: 17-02-2017

The debate about the benefits or harm of Eurasian integration in Kyrgyzstan continues. Despite all undertaken by the authorities efforts (and the entry into the EEU is the most important point policy of the current President Almazbek Atambayev), even the President himself had to admit at last at the end of December last year a meeting of the Supreme Eurasian economic Council in St. Petersburg that "the negative [from the accession of Kyrgyzstan to the EAEC (approx. author)] sometimes prevails...

And this naturally imposes a negative imprint on the economic effects of integration of Kyrgyzstan into the Eurasian economic Union".

Kyrgyzstan is a full member of the Eurasian economic Union from August 2015, and to talk about long-term consequences of membership in it is not necessary. But, nevertheless, has already exposed some problems: do institutions realize the benefits from accession to the EAEU? If Kyrgyzstan is able to respond to external shocks?

Developing in Kyrgyzstan, the situation suggests that the policy makers were not able to adequately assess the consequences of greater integration. The decline in gold prices and the deceleration of the economy (real GDP growth in January-September 2016 amounted to only 1.5%) imposed sanctions against Russia, the devaluation of the tenge and, as a consequence, the reduction in demand from the major countries-trading partners of the EAEC, the negative impact on the functioning of the economy of Kyrgyzstan.

The positive effect from accession to the EEU was expected from the growth of foreign direct investment, expand access to more demanding markets, new technologies and overall increased competition. In addition, it was expected that with a concerted policy of the EAEU countries and create sustainable economic ties in industry, transport and agricultural sector. Important for Kyrgyzstan was the fact that in the case of the country's accession to the EAEU were created all conditions for free movement of labor migrants on the territory of the Union.

Received the greatest benefit migrant workers

Indeed, the greatest benefit of joining Kyrgyzstan to the EEU are now experiencing migrant workers. Since the ratification and entry into force of the Treaty of accession of Kyrgyzstan to the EAEU 12 August 2015, many of the restrictions for migrants have been removed. Was abolished patents, and special work permits, examinations on knowledge of language, culture, history, and law. Increased the periods of labour migrants without registration in the territory of States-members of the Union. Kyrgyz labor migrants were exempt from the procedure of recognition of documents on education and received the right to equal social security.

According to the Central Bank of Russia, in the third quarter of 2016 cross-border transfers of physical persons-non-residents from Russia to Kyrgyzstan increased by 37% compared to the same period in 2015, amounting to $ 864 million. The United States, and has already surpassed the total value of transfers for the year 2015. At the same time, remittances from Russia to Tajikistan fell by 7%, and Uzbekistan – 11% compared to the 3rd quarter of 2015.

Kyrgyzstan's exports continued to decline

In respect of foreign trade situation ribagorzana. Kyrgyzstan's exports over the past two years continues to decline. In 2015, exports decreased by 12% in comparison with 2014, in 10 months of 2016, according to preliminary data, exports decreased by 8% compared to the same period of 2015. Access to the EEU market actually has not increased, but decreased. The proportion of the EAEC in Kyrgyzstan's exports in 2015, reaching 37%, and for 10 months of 2016 amounted to only 33% (with the exception of Armenia). Contrary to expectations, exports to countries outside the EAEU, not declined, exports to China grew by 1.9 times in January-October of 2016, in Turkey 1.1. times.

The tenge devaluation and non-tariff barriers on the border with Kazakhstan

The reduction of export of Kyrgyzstan is mainly caused by a significant decline in exports to Kazakhstan. In 2015, exports to Kazakhstan amounted to 439 million dollars. USA vs 579 mln. USA in 2014, and in October 2016 the total export to Kazakhstan has developed in only 283 million. USA.

There are two main reasons. The first – the devaluation of tenge, which happened just at the time of the accession of Kyrgyzstan to the EEU. The depreciation of the tenge to the soma led to the fact that the Kyrgyz products, estimated at tenge became more expensive, and as a consequence become uncompetitive. At the same time, the weakening of the som against the dollar has led to depreciation of the Kyrgyz goods valued in U.S. dollars, which allowed to keep the export to far-abroad countries.

The second reason is non-tariff barriers on the border with Kazakhstan. Despite the fact that the rules of the EEU stipulates the opening of borders, phytosanitary control was produced by the Kazakhstan 27 October 2016, after more than a year after the entry of Kyrgyzstan in the EEU. Veterinary checks are still not cleared. Besides, 3 January 2017, it became known that Kazakhstan has imposed a ban on the transit of milk and meat by road. Data non-tariff barriers do not adversely affect the agricultural producers who are primarily focused on Kazakhstan market.

According to the statistics Committee of Kazakhstan, Kazakh imports from Kyrgyzstan under the article "meat and offal fresh, frozen and chilled" in January-November 2016 amounted to only 74% from the same period of 2015, and the article "milk and cream not concentrated and condensed" and even less – only 53%. It is assumed that these measures have protectionist, but at the same time, if Kyrgyzstan was institutionally prepared to undergo veterinary control with the appropriate laboratories for product certification, for Kazakhstan it will be more difficult to impose such barriers.

The country hastily and ill-conceived thought that competitive and ready to become a full member of the Union

Most likely, this protectionist policy in the framework of the EAEC Kyrgyz politicians were unprepared. Unfortunately, the actions of the legislators and of the government of Kyrgyzstan can be traced to the principle of "let's introduce, and then we'll see." Problematic issues in respect of technical regulations, construction and equipping of labs, customs and tax administration needed to be resolved beforehand, including at the stage of negotiations. In the end, 24 January 2017, the Ministry of agriculture announced the intention to build additional labs to certify products for market.

In addition, now the importers bear the additional costs associated with border crossing and tax administration, when the government introduces a new procedure of border crossing and customs Declaration of imported goods, then cancels them due to their inefficiency. It is also interesting that in early 2017 the government has announced its intention to adopt a new Tax code, amended in accordance with the realities of the EEU. This document provides for the abolition of simplified taxation procedures, which primarily affect importers and exporters as well as representatives of the garment industry. Thus, according to the business community, the new Tax code was prepared in haste, has not been agreed with the business and not passed the necessary procedures for the regulatory impact analysis. Only through public outrage and the business, the timing of the adoption of this code was postponed, and the document sent back for revision.

In September 2015, as Minister of economy, Vice-Prime Minister Oleg Pankratov said that "joining the EEU, Kyrgyzstan has become more attractive and competitive on the world market". Held on 24 January 2017, the roundtable discussed the results of the end of the grace period of Kyrgyzstan in the EEU, in the office of the Vice-Prime Minister, Pankratov said that: "...there was a situation [before the accession to the EEC (approx. author)], and had to choose the least of two evils and it was decided that it is necessary in an accelerated format to join the Eurasian Union".

Was it the lesser of two evils large — is unclear, but such statements actually confirm that the country hastily and ill-conceived thought that competitive and ready to become a full member of the Union. Current issues of the EEU told the Deputy chief of staff of the President of Kyrgyzstan Sapar Isakov, focusing on the fact that not all partners in the EEU are ready for open competition, and that it is necessary to remove internal barriers and exemptions, which can now "do not give reason to believe that the future Union will be successful".

At the above mentioned Council President Atambaev spoke about the "overwhelming negativity", and also signed an agreement on establishing a joint foreign economic activities within the EEU. According to analysts, this may be caused by the fact that Kyrgyzstan is trying to "save the preferences for its producers." Does this mean that the initial euphoria regarding the accession of Kyrgyzstan to the EEU as it was shown to the authorities of Kyrgyzstan are starting to fade?

In any case, in August 2017 grace period ends Kyrgyzstan to the EAEU from 1 July will enter into force the Treaty on the Customs code of the EAEU, and from August 1 in Kyrgyzstan starts to operate technical regulations of the Eurasian economic Union, based on the current situation, it is safe to say that the country is still faced with a whole range of new challenges in the framework of the Eurasian economic Union.

Saviya Hasanova


Tags: Russia , Central Asia