Customs union creates new rules, new problems

Kazakhstan’s entrepreneurs are preparing for tariff-free competition with Russian corporations - and not all of them welcome the idea.

“The Russians and Belarusians will export products superior to ours. Duty-free, they will cost (less than what) we charge here”, said Amir Safarov, owner of a furniture workshop in an Almaty suburb. “What are we to do now -- go out of business?”

The rules of the Customs Union of Kazakhstan, Russia and Belarus are to take effect July 1, although Belarus’s entry remains in doubt since it and Russia are disputing energy prices.

The free-trade zone with Belarus and Russia came into being January 1, and July 1 will mark the lifting of non-tariff regulatory barriers, such as veterinary and sanitary requirements, licensing, technical regulations and customs clearance, said Zhanar Aitzhanova, Kazakhstani minister of economic development and trade.

The government expects the new customs union to benefit Kazakhstani businesses and consumers. Some are sceptical, however.

Gorkhmaz Allahverdiyev, a dairy plant owner from Pavlodar, said that he is worried about Kazakhstani products in the Russian market.

“I don’t think our produce will sell well in Russia — but the Russians, who have better equipment and technology, will have a competitive advantage in the Kazakhstani market”, he said.

Muratbai Khairushev, head of the Mangistau Oblast branch of the Independent Association of Entrepreneurs, also worried.

“With the growing prices of accessories, production will become more expensive, and so will the end product”, he said.

Mangistau Customs Control Department Seaport Chief Yersain Alimbayev disagreed. Kazakhstani businesses will have an incentive to produce better goods, while getting access to new markets, he said.

Several products will be competitive in Russia, Ruslan Sultanov, general director of the Trade Policy Centre under the ministry of economic development and trade, said, including “pipes, X-ray equipment, condensers, spare farm equipment parts, crankshafts, and food products”.

The new trade regime will eliminate barriers that used to plague Kazakhstani exporters trying to sell to Russia now will go away, Sultanov said.

One such barrier – a discrepancy in transportation rules – will also disappear, Universal Logistics technology director Dauren Bimov said.

“Our companies exporting goods to Russia can keep their railcars on Russian soil for only 90 days, and the return of cars is strictly controlled”, he said. “Meanwhile, Russian railcars are allowed to stay for a whole three years in Kazakhstan and haul freight in this country while awaiting profitable back orders”.

The new Customs Union will impose the same 90-day limit on Russian railcars, he said. “Today, (Kazakhstan imports) light industry goods without declarations, certificates or invoices and charges a customs duty amounting to € 0.60 per kg of merchandise”, said Lyubov Khudova, president of Light Industry Association. “With our market so open to imports, the textile industry in Kazakhstan meets only 8% of domestic demand. … We are prepared to compete and raise domestic production to the 30% level by 2014”.

Kuanyshbek Alenov, a board member at the National Union of Entrepreneurs and Employers, said the union will create more choices for consumers in Kazakhstani markets, but added that businesses must adapt.

“Owners of large businesses will find it easier to work with decreased transportation costs within the Customs Union countries. Medium-sized and small businesses are not so enthusiastic, though”, he said. “To stay afloat, they will have to modernise production, enlarge the range of products, improve quality and offer new services, which is not always possible”.

In 2009, Kazakhstan’s imports from Russia equalled 31% of the total (US $8.9 billion) and from Belarus 1.3%. Exports to Russia equalled 8% (US $3.5 billion) of the total and to Belarus 0.1%.