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.
In October 1995, the heads of the governments of Russia, Kazakhstan, and Byelorussia issued a joint appeal to the governments of CIS member states to join the triple union. Running somewhat ahead of the story, let us note that in March 1996 Kyrgyzstan joined the customs union.
At the same time progress in the development of bilateral economic relations is checked by a number of problems, notably by chronic nonpayment of mutual debts. Kazakhstan's debt for electric power received from Russia grew almost threefold in 1995. In turn, Russia owed a large sum to Kazakhstan for the coal from Ekibastuz.
Serious possibilities are sometimes missed for successful cooperation between enterprises in the fuel and energy complex, in metallurgy, and other branches of the economy of Kazakhstan and Russia. Close production links became established between the Orskneftegazsintez JSC and the Aktyubinskneft JSC, which form the Orenburg JSC. Early in 1995, the management of these associations conducted mutual consultations and decided that a joint oil company must be set up.
In Russia, the formation of financial-industrial groups went on at an increasing pace. The results of their work in 1995 show that integration of industrial and banking capital had a positive impact on economic development.
Further effective economic cooperation between Kazaklistan and Russia calls for systematic analysis and work on a mechanism of control over the implementation of bilateral Kazaklistani-Russian treaties and agreements.
The following tasks should in our view be singled out in the field of economic cooperation between Kazaklistan and Russia that are of mutual interest and call for coordinated decisions of the governments:
a) Stabilization of export of raw materials and subsequent increase in it as a basis for the growth of currency earnings for the modernization of production;
b) Diversification of exports;
c) Additional currency and investment resources for restructuring the economy;
d) Support for active trading policy on CIS countries' potential markets;
e) Moderate protectionism in relation to newly created import-replacing production lines.
Under these conditions the two countries will have to solve new problems in economic integration in the framework of the Customs Union and in the system of world economic links, in searching for additional financial resources necessary for the implementation of economic restructuring and their balanced growth, in defending the interests of the domestic market from unfavorable conditions in the world economy and from, foreign competition at the stage of stabilization of their economies.
In choosing a promising export and import specialization, Kazakhstan and Russia should give preference to commodities that are least susceptible to market fluctuations. To achieve this, it is necessary to conduct regular analysis and forecasting of the situation on the markets for the principal import and export commodities, favoring long-term agreements on their purchase/selling over one-off deals.
In the medium-term perspective, transition should be effected from restrictive policies to encouragement, consistently facilitating the formation of a progressive, structure of exports and creating a corresponding system of its state support.
Analysis of export/import operations of foreign trade companies and enterprises shows that, in the absence of combined controls over exports and currency and of an obligatory norm of currency sales, 1 all export earnings reach the republic. According to Kazakhstan specialists calculations, some $0.6-0.8 billion end up on the accounts of Kazakhstan enterprises in the countries of near and far abroad. According to Russian experts, corresponding figures for Russia range from $5 to $17 billion. In this connection, one of the main tasks of management of foreign trade activities of the two states is the setting up of systems of customs control over export and import contracts and banking control over currency earnings, investments, and other commodities.
In future, it is advisable to step up coordination of information systems of control over repatriation of currency earnings by the customs bodies and the banking system, which will permit a concentration of efforts on securing maximum currency earnings from exports.
It is advisable to restrict the decisive role of the state in foreign economic activity to internationally recognized standards, to be implemented in accordance with the rules and norms of the World Trade Organization.
It is also advisable, in a situation of considerable reduction of the share of state property, to export and import commodities in state interests only within the framework of intergovernmental agreements, which must not include any privileges or tax or duty exemptions. For this purpose, the possibility is created for domestic purchases on a competitive basis.
The state policy of selective protection in relation to promising exporting industries and conquering foreign markets gradually becomes one of the main priorities of economic policy as a whole; it is called, upon to prepare the implementation of a really proactive export policy, without which it is impossible to ensure either the payment of foreign debts, or internal financial stabilization, or investment activity and employment.
Another important task is the achievement of favorable trading procedures-in relations with foreign countries and their trade and economic groups, organizations, and unions, as well as the lifting of existing discriminatory restrictions, and prevention of new ones, with regard to the member states of the customs union.
To solve this task, plans are made to work consistently and purposefully toward the entry of Kazakhstan and Russia in the World Trade Organization, to harmonize our countries' legislative systems with international norms and principles, and to implement the agreement on partnership and cooperation with the European Union and agreements with other countries.