EUROPEAN UNION AND KAZAKHSTAN: TRENDS IN TRADE AND ECONOMIC COOPERATION

Zharas IBRASHEV
Elmira ENSEBAEVA


Zharas Ibrashev, D.Sc. (Hist.), professor, Kainar University (Almaty, Kazakhstan)

Elmira Ensebaeva, Lecturer, Kainar University (Almaty, Kazakhstan)


Kazakhstans geopolitical position in the center of the Eurasian continent, at the juncture of Europe and Asia, its vast area and abundant natural resources predetermine the republics special mission. Its participation as an equal player in international relations and its wide-ranging interests necessitate and promote the countrys orientation toward both the Euro-Atlantic and the Asia-Pacific regions.

In one of the first strategic documents, The Strategy of Kazakhstans Rise and Development as a Sovereign State, President Nursultan Nazarbaev wrote: A policy for joining the world community must be formulated with due regard for the possibilities of partnership with the three main centers of the market systemU.S.A., Japan and Western Europebearing in mind that they have been the driving force behind the intensification of world economic ties. Cooperation with them also opens the way into international financial institutions.1

Hence it follows that Kazakhstans current position predetermines its choice in favor of multivector cooperation and partnership. The European vector, or long-term and equitable cooperation with the European Union (EU), is among the constant priorities of the republics foreign policy.

Kazakhstans interest in European affairs is primarily due to the fact that a part of the republics territory lies on the European continent, so that events in Europe are naturally of interest to it. Another and equally important reason why the republic is interested in cooperation with the European Union is that today the EU is one of the main economic centers of the world and the most advanced economic and trade association. A point to note here is that the European vector of Kazakhstans foreign policy implies both relations with the EU as a whole and cooperation with its member countries on a bilateral basis.

Let us recall that back on 18 December, 1989, the European Economic Community (now the EU) and the Soviet Union signed an agreement on trade, commercial and political cooperation,2 under which the parties granted each other most favored nation treatment. By virtue of that agreement, the CIS countries (including those of Central Asia) as the legal successors of the former U.S.S.R. gained access to the single market of the European Union.

Official relations between the Republic of Kazakhstan (RK) and the European Community were established in December 1991, right after the breakup of the Soviet Union. On 23 December, the European Community issued a statement on the future status of Russia and the other FSU republics and declared its readiness to recognize the republics that had founded the Commonwealth of Independent States as soon as they confirmed their readiness to fulfill the requirements formulated in The Principles of Recognition of Newly Independent States in Eastern Europe and the Soviet Union of 16 December, 1991.

The required assurances (notably from Kazakhstan) were soon received, and on 31 December, 1991, the European Community made a joint statement on its readiness to proceed to recognition of the FSU republics based on their assurances that they were prepared to meet the conditions set forth in the above-mentioned Principles.3 Consequently, 31 December, 1991, may be regarded as the date when, from the standpoint of international law, bilateral relations between Kazakhstan and the European Union got underway. The establishment of official diplomatic relations in September 1992 with the signing of a document to that effect was another major step in this area and an important political event.

The main purpose of these relations for our republic is to develop political and economic cooperation with the countries of Western Europe and equal partnership with the EU. Other important tasks include an expansion of trade with the EU countries on an equitable and mutually beneficial basis; extension of most favored national treatment in trade, access to the world market; and attraction of investments from the EU countries.

From the very beginning, the two parties started from the assumption that in order to develop fruitful cooperation it was necessary to sign a basic document providing for the establishment of close and diverse relations between Kazakhstan and the EU.

A new stage in the development of these relations began on 23 January, 1995, when a Partnership and Cooperation Agreement (PCA) between the Republic of Kazakhstan, on the one hand, and the European Union and its member states, on the other, was signed in Brussels. That document set forth a new concept of relations between Kazakhstan and the EU, whose main point is that these relations should be raised to the level of equal and mutually beneficial partnership.4 It also contains an impressive list of goals and tasks in the field of civil cooperation, ranging from trade relations to intellectual property and company charters, from transport to higher education, and from agriculture to action against illegal activities.

In greater detail, the current state and problems of cooperation between Kazakhstan appear as follows. The largest and most developed field of mutual relations is economic cooperation in two key areas: trade and investment. It is an essential prerequisite for the development of integration processes in the political and economic spheres, a fact confirmed during President Nazarbaevs visit to Belgium, Austria, France and the European Commission in June 2000. During these meetings, the European leaders made it quite clear that they were interested in our republic as a promising economic and trading partner in Central Asia. In the view of French President Jacques Chirac, European Commission President Romano Prodi and NATO Secretary General George Robertson, Kazakhstan has the potential to help stabilize the situation in the region and to act as a catalyst in regional cooperation. During President Nazarbaevs meeting with Romano Prodi, the EU Commission President emphasized that EU-RK trade and investment cooperation had good prospects ahead of it.5

For Kazakhstan, cooperation in the investment sector is important not only from an economic, but also from a political standpoint, being regarded as a key element of the economic strategy and as real evidence of the EU countries declared desire to assist the republic in building democracy and a market economy.

Vigorous efforts to attract foreign capital into the republics economyin the form of export credits under bilateral arrangementsstarted in 1992. A substantial part of these credits was obtained in 1992-1994. The first credits were extended by the governments of Germany and Austria, which have also proved to be the largest creditors.

In terms of European investment per capita, Kazakhstan has leading positions among the CIS countries. According to the European Bank for Reconstruction and Development, the republic accounts for one-quarter of all foreign direct investments (including European) attracted to the CIS countries. In this respect, Kazakhstan is one of the most attractive and promising countries of the Commonwealth.

A specific feature of European investments in Kazakhstan is their concentration in the raw material sector of the economy. Most of these investments go into the oil and gas complex (about 46%) and nonferrous metallurgy (over 25%), followed by ferrous metallurgy (4.4%), the energy complex (4.3%), the food industry (3.4%), communications and mining (2.4%).

The share of direct investments by the EU countries from 1993 through the first quarter of 2001 was around 34.2% ($3,479.5m) of the total amount of foreign direct investment (FDI) inflows into the Kazakhstan economy (see Table 1).

Table 1

Foreign Direct Investment in Kazakhstan by EU Countries

 

 

Country

1993-1999

2000

First quarter of 2001

$m

Share of total FDI inflows, %

$m

Share of total FDI inflows, %

$m

Share of total FDI inflows, %

Austria

20.4

0.2

0.4

0.0

0.0

0.0

Belgium

162.7

1.7

7.6

0.3

0.5

0.0

United Kingdom

1 220.1

12.5

464.2

16.9

99.2

8.3

Germany

191.6

2.0

68.8

2.5

14.4

1.2

Denmark

1.2

0.0

0.0

0.0

0.0

0.0

Ireland

24.1

0.2

3.3

0.1

0.9

0.1

Italy

146.4

1.7

351.0

12.8

79.9

6.7

Netherlands

283.8

2.9

109.9

4.0

38.9

3.3

France

116.6

1.2

34.1

1.2

11.0

0.9

Sweden

9.1

0.1

1.0

0.0

0.2

0.0

Source: Sotsialno-ekonomicheskoe razvitie, Statistics Agency of the Republic of Kazakhstan, July 2001, pp. 70-71.

As the table shows, Kazakhstans main investment partners are Britain, Italy, Germany, the Netherlands and France.

Britain is the worlds second largest investor in the economy of Kazakhstan (ranking behind the U.S.A.) and the first among the countries of the European Union. From 1993 through the first quarter of 2001, its investments in the republic came to $1,783.5m (51.2% of the overall amount of investment by the EU countries).

The share of German direct investments is insignificant. From 1993 through the first quarter of 2001, they amounted to $274.8 (7.8% of the EU total), including $14.4m in the first quarter of 2001 (5.8% of the EU total, or only 1.2% of the overall amount of foreign direct investment in Kazakhstan).

Italys direct investments in that period amounted to $577.3m (17.1% of the EU total), including $79.9m in the first quarter of 2001 (32.6% of the EU total, or 6.7% of the overall amount of FDI in Kazakhstan).

The government of Kazakhstan is optimistic about the future of its relations with Sweden. True, bilateral ties between the two countries still fall short of their potential. But Kazakhstans interest in Sweden both as a political and as an economic, trade and investment partner has been growing. One should note that substantial progress has already been made in economic and trade relations, especially over the past two years. From 1993 through the first quarter of 2001, Sweden invested $10.3m in the republics economy (0.2% of total FDI by the EU countries), and in the first quarter of 2001 it ranked eighth among the EU countries with $0.2m (0.08% of the EU total).

In recent years, the EU countries have shown a greater interest in the Caspian region, especially in its energy resources. That is because the EU states, whose foreign-policy strategy is aimed at building a single Europe, are now faced with the need to work out a common energy policy. This is due in large part to growing competition in world markets and to the Asian financial crisis.6

Guided by its strategic interests, within the framework of the TACIS program the European Union has been implementing a project for the transportation of Caspian oil known as TRACECA (transportation corridor Europe-Caucasus-Asia). This is a program of technical assistance financed by the EU and aimed to develop traffic routes from the West to the East running from Europe across the Black Sea, the Caucasus and the Caspian Sea to Central Asia. This transportation corridor has quite naturally come to be known as the New Silk Road. Kazakhstan plays an important part in the projects for the construction of new and renovation of existing roads and railroads leading to the Central Asian region.

A total of 39 technical assistance studies (to the amount of 57.405m euros) and 14 infrastructure investment projects (around 52.3m euros) have already been financed under this program.

The development of trade ties between Kazakhstan and the European Union is one of the main lines in the strategy of mutually advantageous cooperation being carried on within the framework of the above-mentioned Partnership and Cooperation Agreement of 23 January, 1995. Under this document, the parties have accorded to each other most favored nation treatment in every area of trade. Today the EU is Kazakhstans second largest (after the Russian Federation) trading partner (see Table 2), and the republic has been designated as one of the EUs major trading partners in Central Asia.

Table 2

Main Indicators of Kazakhstans Foreign Trade with the EU Countries for January-August 2002

Country

Trade turnover

Exports

Imports

$m

Share of total RK trade turnover, %

$m

Share of total RK exports, %

$m

Share of total RK imports, %

Austria

30.5

0.3

3.2

0.1

27.3

0.6

Belgium

27.5

0.3

1.4

0.0

26.1

0.6

United Kingdom

253.5

2.5

96.4

1.7

157.1

3.7

Germany

508.4

5.1

131.8

2.3

376.6

8.8

Greece

39.2

0.4

24.3

0.4

14.9

0.0

Denmark

16.7

0.2

0.8

0.0

15.9

0.4

Ireland

16.8

0.2

7.3

0.1

9.5

0.2

Italy

716.5

7.1

563.4

9.7

153.1

3.1

Spain

25.7

0.3

5.3

0.1

20.4

0.5

Luxembourg

4.0

0.0

0.09

0.0

4.0

0.1

Netherlands

140.4

1.4

81.8

1.4

58.6

1.4

Portugal

1.6

0.0

1.4

0.0

0.02

0.0

Finland

66.9

0.7

22.0

0.4

44.9

1.1

France

83.3

0.8

16.1

0.3

67.2

1.6

Sweden

54.7

0.5

12.2

0.2

42.5

1.0

Total

1,986.5

19.8

967.6

16.7

1,018.9

23.9

Source: Pokazateli vneshnei torgovli Respubliki Kazakhstan na osnove tamozhennykh deklaratsii, Statistics Agency of the Republic of Kazakhstan, 2002, pp. 1-2.

In order to expand the special market economy treatment for Kazakhstan, on 9 October, 2000, the European Council introduced an amendment to the EU antidumping regulation (384/96), that is, the EU recognized the republics economy as a market one. This treatment extends a number of benefits to Kazakhstans exporters. In particular, antidumping investigations are now based on the situation existing in Kazakhstan and do not depend on the situation in third countries. In addition to that, the European Council has revised the criteria for an individual approach to Kazakh companies on the antidumping issue. The republics producers and exporters are now entitled in each particular case to prove that their production costs and prices are not influenced by the state. The advantage here is that the value of goods produced by Kazakhstans producers and exporters is now assessed on the basis of real production costs.7

The decision came into force on 12 October, 2000, and is highly important for strengthening and diversifying bilateral trade. EU recognition of Kazakhstans economy as a market economy is evidence of a qualitatively new level of trade and economic relations. It implies not only broader access for Kazakhstans goods to EU markets, but also recognition of the republics successes in the field of democratic and market-oriented reform, facilitating its accession to the World Trade Organization (WTO), a step for which Kazakhstan has been systematically preparing since 1996. WTO accession is a priority line of its foreign economic activity and reflects its desire to take part in global trade on equal terms with all other countries of the world. Most of the provisions on trade written into the Partnership and Cooperation Agreement are based on the relevant articles of the WTO agreement, paving the way for the republics entry into that authoritative international organization.

Noting the republics desire to join the WTO, the head of the European Commissions office in Kazakhstan, Alan Vaddams, formulated the EU position on this issue as follows: Kazakhstan already enjoys most favored nation treatment in trade with the EU countries, since it has been granted, on a bilateral basis, the special status of a market economy country. As regards Kazakhstans accession to the WTO, he said, the EU supports it.8

The attraction of the markets of EU countries is that they are sufficiently open to Kazakhstans goods as a result of low import duties on these goods and the existing system of preferences. Over the past two years, the republic has had a surplus in trade with the European Union. One should note that the overall structure of trade has changed very little. Our exports mostly consist of fuel, oil, oil products, ferrous metals, copper and articles thereof, mineral products and grain. Their main consumers are Germany, Italy, Britain and the Netherlands.

As regards the structure of imports, these for the most part consist of reactors, boilers, machinery, electrical and other equipment, land, air and water transportation facilities, their parts and accessories, ferrous metal products, clothes, footwear and other consumer goods. The main suppliers are Germany, Britain, Italy, the Netherlands and France.

In January-August 2002, the trade turnover between Kazakhstan and the EU was $1,986.5m, including exports from the republic$967.6m (16.7% of its total exports), and imports$1,018.9m (23.9%). So, the EU share in the republics foreign trade turnover in that period came to 19.8% of its overall volume. Among the EU countries, the republics principal partners during these months were Italy (7.1%), Germany (5.1%), Britain (2.5%), Netherlands (1.4%), Finland (1.65%) and France (0.8%), followed by Sweden (0.5%), Greece (0.4%), Austria, Belgium and Spain (0.3% each), Denmark and Ireland (0.2% each).

Problems of trade and economic cooperation are considered at meetings of the Kazakhstan-EU Subcommittee on Trade and Economic Issues, which is a working body of the Kazakhstan-EU Cooperation Committee monitoring compliance with the PCA. At the three meetings of the Subcommittee held to date (16 May, 2000, 19 June, 2001, and 6 February, 2002), the parties discussed matters of mutual market access for goods and services, and also the business and investment climate in the republic.

As we have already noted, one of the key issues is export of Kazakhstan steel to the EU countries. In pursuance of the Agreement between the Government of Kazakhstan and the European Coal and Steel Community on Trade in Certain Steel Products, signed on 15 December, 1999 (which was formally in effect until 31 December, 2001), the European Commission established quotas for the delivery of Kazakhstan steel. And on 22 July, 2002, a new agreement in this area was signed in Brussels between the two parties, under which the EU has increased export quotas for certain kinds of steel products: by 34% in 2002 (to 108 thou tons) and by another 2.5% in 2003 (to 110.7 thou tons) and in 2004 (to 113.5 thou tons).9

There were also restrictions on the supply of Kazakhstan caviar and other fish products. By decision of the European Commission (26 March, 1999), the republic was struck off the list of countries exporting these goods to the EU countries. That was due to the shortcomings brought to light during an inspection visit by European Commission experts to Kazakhstan in November-December 1998. At that time, these measures were largely of a technical nature: they were connected with the requirements of EU sanitary and health standards for imported food products, because there is a difference between Kazakhstan and European standards. The decision was also motivated by the lack of a legal framework for the production and sale of fish products at Kazakhstan enterprises AO Balkhashbalyk, OAO Atyraubalyk and TOO Amirov & Co.

During a reinspection in April 2000, European Commission experts noted the need to harmonize the relevant legislation, notably to draw up, in accordance with the Commissions directives, a new instruction on technical inspection of fish processing enterprises in Kazakhstan by the republics competent authorities, to develop criteria for a microbiological evaluation of fish products and water and for their analysis for the presence of heavy metal salts, and to determine new parameters for monitoring the critical points of the technological process. Two months later, on 29 July, 2000, the European Commissions Food and Veterinary Office prepared and forwarded to the Kazakhstan authorities for examination a report on the results of the April inspection visit to the republic by European Commission experts. In accordance with the report, the republics specialists drew up a timetable of measures to remedy the identified shortcomings and on 7 September forwarded it to the Food and Veterinary Office. The Kazakhstan side did its utmost to get the restrictions on access for its caviar and other fish products to the EU market lifted. Thus, in November 2000 the republics Foreign Ministry addressed a note (13/1961) to the European Commissions office in Almaty with the attachment of written guarantees provided by the countrys competent authorities, and a notice of removal of all the shortcomings identified by European Commission experts. Following an exchange of letters on this issue reflecting various aspects of the work being done (during which, at the second meeting of the Kazakhstan-EU Cooperation Committee on 14 December, 2000, European Commission representatives informed Kazakhstan that the ban on the import of its fish products could be lifted), the Commission finally made a decision to include the republic in the list of countries allowed to export caviar and fish products to the EU states.10

The main item of the republics agricultural exports to the EU countries is food wheat. According to Kazakhstans Statistics Agency, in the first ten months of 2001 exports of wheat to these countries totaled 35,297.4 tons (to the amount of $3,202.8 thou), including 3.817.9 tons to Greece, 2,726.1 tons to Italy, 1,097.8 tons to Spain, 120 tons to the Netherlands, and 3,000 tons to Portugal.

The list of agricultural products imported by the republic includes several dozen items, primarily poultry, other live animals, fresh or cooled beef, mutton, offal of large and small horned cattle, pigs and horses, fresh and frozen fish, milk and cream, butter, fruits and vegetables.

Deliveries of textiles to the EU countries are effected under the Agreement on Trade in Textile Products of 15 October, 1993, which has since been extended until 31 December, 2003. This agreement enables Kazakhstan to export to the EU countries 161 categories of textile products without any quantitative restrictions.11

Under the Partnership and Cooperation Agreement, fruitful contacts between Kazakhstan and the EU have been developing not only in the trade and economic sphere, but also in culture, education, science, environmental protection, etc.

As regards certain shortcomings, these are discussed at meetings of PCA working bodies, with the adoption of appropriate remedial measures.

So, since the establishment of diplomatic relations between the Republic of Kazakhstan and the European Union their cooperation and partnership have developed most effectively and there are broad prospects for diversifying mutually beneficial ties.


1 N.A. Nazarbaev, Prezident Respubliki Kazakhstan. Strategia stanovlenia i razvitia Kazakhstana kak suverennogo gosudarstva, Dauir, Alma-Ata, 1992, pp. 20-23.
2 See: Dokumenty kasaiushchiesia vzaimootnoshenii mezhdu ES i Rossiei, Pravo, Moscow, 1994, pp. 12-31.
3 See: Ibid., pp. 36-37.
4 See: K.K. Tokaev, Vneshniaia politika Kazakhstana v usloviakh globalizatsii, AO Sak Publishers, Almaty, 2000, p. 427.
5 See: V khode vizita v Belgiu i Frantsiu N. Nazarbaev zaveril, chto smena Prezidenta i parlamenta v Kazakhstane proidiot vovremia, v sootvetstvii s Konstitutsiei, Panorama, 30 July, 2000; Evropeiskii vektor razvitia, Kazakhstanskaia pravda, 28 July, 2000.
6 See: M.T. Laumulin, Kazakhstan v sovremennykh mezhdunarodnykh otnosheniakh: bezopasnost, geopolitika, politologia, Almaty, 2000, pp. 294-295.
7 See: Sotrudnichestvo na poroge III tysiacheletia, Evropeiskii soiuz. Novosti Evropy, No. 10, 2000, pp. 4-5.
8 Alan Vaddams, Kazakhstan ne dolzhen stanovitsia bogatoi stranoi s bednym naseleniem, Izvestia-Kazakhstan, 5 March, 2002.
9 New EU-Kazakhstan Steel Agreement Opens Way for Increased Steel Imports from Kazakhstan [http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt].
10 Current archive documents of the Ministry of Foreign Affairs of the Republic of Kazakhstan, Bilateral Cooperation Department.
11 The Agreement between the European Economic Community and the Republic of Kazakhstan on Trade in Textile Products [http://www.delkaz.cec.eu.int/en/eu_and_country/agree_textile.htm].

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