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The Reasons and Benefits of Kazakhstan’s Accession to the WTO

by

Gimadiyeva Saida

Under the Supervision of Xin Tian

School of Economics and Management

Nanjing University of Technology

May, 2019

Declaration

I hereby declare that this submission is my own work and that, to the best of my knowledge and belief, it contains no material previously published or written by another person or material which has to a substantial extent been accepted for the award of any other degree or diploma at any university or other institute of higher learning except where due acknowledgment has been made in the text.

Signature: Gimadiyeva Saida

Name: Gimadiyeva Saida

Table of Contents

Acknowledgment i

Abstract ii

1.Introduction - 1 -

1.1 Research background - 1 -

1.2 Objectives of the study - 2 -

2.Literature Review - 3 -

2.1 Accession to the WTO - 3 -

2.2 The reason for joining the WTO - 3 -

3. The background and process of joining WTO of Kazakhstan - 7 -

3.1 Analysis of economic opportunities of the Republic of Kazakhstan for joining WTO - 7 -

3.2 Process of joining WTO - 10 -

4. The impact of joining WTO for Kazakhstan - 14 -

4.1 Positive impact of joining WTO - 14 -

4.2 Negative impact of joining WTO - 15 -

5. Recommendations and conclusion - 17 -

5.1 Recommendations - 17 -

5.2 Conclusion - 18 -

References - 19 -

Acknowledgment

I would like to express my special thanks of gratitude to my supervisor Xin Tian who gave me the opportunity to do this thesis on the topic “The Reasons and Benefits of Kazakhstan’s Accession to WTO”, which helped me in doing a lot of research and allowed me to know about a lot of new things. Secondly, I would like to thank my parents and friends who supported me through my entire life.

Abstract

This work is aimed at identifying the reasons and benefits of Kazakhstan's accession to the WTO by studying the history of accession, the formation of Kazakhstan's statehood, considering various aspects affecting the development of Kazakhstan's relations with the WTO. Analyzing the data of the papers of predecessors and various kinds of information from official sources, recommendations were proposed that will effectively cope with the existing problems and help Kazakhstan not only to reduce the level of the economy but also to take a strong position in this organization

1.Introduction

1.1 Research background

Founded in 1995, the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), founded in 1947, was designed to improve global trade by liberalizing trade policies, to ensure a dispute resolution process and fair negotiation platform. At the moment, the organization includes 164 countries and successfully cooperate with each other. Membership in the organization gives confidence in safe supplies, a wider choice of high-quality products and services, openness of foreign markets, equal rights of participants and accurate implementation of the rules. By lowering trade barriers, the WTO system also destroys other barriers between nations and nations. The main goal is also its more prosperous, peaceful and responsible economic world.

In connection with the need to develop international relations and the desire to be part of a huge market, on January 26, 1996, Kazakhstan submitted to the secretariat a formal application for accession to the WTO. Since the trade organization has tough conditions, the process of Kazakhstan’s accession to the WTO took a long time, and only in June 2015 the World Trade Organization (WTO) officially announced that Kazakhstan had completed accession negotiations, becoming the 162nd member of the WTO. Kazakhstan starts the fourth year of fulfillment of commitments made when joining the WTO. Although he is a full member of the organization, there are still some preferences, due to the short time spent in the organization. Also being a member of the customs union with the Russian Federation, which, in turn, based on recent events, has serious problems in relations with the EU and the United States, Kazakhstan faces a number of difficulties, which greatly affects the inadequate work and dysfunction of some agreements with the World Trade Organization.

Despite all these difficulties, Kazakhstan still has good reasons to remain a member of the WTO and to strengthen the already established dialogue, increasing personal benefits for the development of its own economy and the welfare of its citizens.

Today, a large number of studies are focused on examining the overall picture of the impact of the WTO on the object of study, identifying positive and negative aspects, studying the problems and prospects of organizing, threatening and weakening the economy from the lack of competitiveness of local products, etc. This work is aimed at studying the causes and benefits of joining a young, developing country to the WTO, using the example of Kazakhstan, which is actively showing itself as a modern country developing at high rates. The study will give an idea of ​​the reasons and benefits of accession, will help to more clearly determine the positive side of participation in the WTO, which shows the uniqueness of this work.

1.2 Objectives of the study

The most important objectives of study are scrutiny of the path of the negotiation process of Kazakhstan on accession to the WTO, identifying the reasons for Kazakhstan’s accession to the WTO, the positive and negative points of Kazakhstan’s accession to the WTO and find ways to solve them, and based on the experience of other countries, identify possible positive aspects of accession to the WTO on the economy of Kazakhstan.

2.Literature Review

2.1 Accession to the WTO

Countries wishing to become members of an organization join the WTO through a process whereby existing members and the acceding country agree on a series of reforms, from tariffs and other market access commitments to internal rules and policies. The Marrakesh Agreement, which establishes the WTO on the basis of the GATT, in Article XII discusses new accessions to a multilateral body (World Trade Organization, 2017a). The article is rather short and vague; a country (or a separate customs territory) joins the WTO "on terms that must be agreed between it and the WTO" (World Trade Organization, 2017a). For clarity on the ambiguity of the article, the WTO secretariat created additional principles and an agreed set of procedures, including (a) the establishment of a Working Group, (b) a memorandum of the applicant country with a detailed description of its foreign trade regime, (c) negotiations, both bilateral and multilateral as appropriate, with respect to schedules of specific commitments in relation to goods and services and (d) a report of the Working Group on discussions, a draft decision and a protocol of accession, which must be approved by existing members. While the rules require two-thirds of WTO members to approve a new member, in practice the unanimity rule prevails, which governs most of the WTO's activities (Cattaneo and Primo Braga, 2009).

2.2 The reason for joining the WTO

Membership in the WTO is, according to the organization itself, “a balance of rights and obligations” (World Trade Organization, 2017b). Currently, the WTO has more than 160 members, and each member has its own rationale. In their review of WTO accession, Cattaneo and Primo Braga (2009) describe some of the basic rights that members receive, including improved market access in the form of most-favored-nation status (MFN), protection from special protectionist measures by other members, the place at the international trade negotiating table and access to the WTO dispute settlement mechanism, which is sufficient to attract members.

In the opposite way, the “obligations” of WTO members may also be reasons for joining; Cattaneo and Primo Braga (2009) note that countries can use WTO commitments to obtain more efficient trade policies, fix the reforms of the business environment, declare their loyalty to reforms in other countries, and demonstrate a desire for international cooperation. Evenett and Primo Braga (2005) call this “seal of approval” effect “seal of approval” that helps attract foreign investors (p. 1).

2.3 The benefit of joining WTO

Accession to the WTO can contribute to the growth of the economy in various ways. Trade openness promoted by the WTO can stimulate economic growth in developing countries, increasing the efficiency of resource allocation, using comparative advantages. Trade openness also provides growth at the expense of scale, affects the flow of investment, increases demand for other developing countries and provides access to resources that are not available domestically to increase the productivity of firms (World Bank and World Trade Organization, 2015, p. 19). 23). Referring to Winters (2002), interconnection can lead to trade reform, which will contribute to long-term growth and resource efficiency. Joining can also be part of policies that form more efficient and competitive markets and more transparent and predictable relationships (Winters, 2002).

Another literary source is considering a revision of the policy in the WTO that is required for accession to the WTO. For example, Sauvé (2016) assumes that new members should pursue policies that require foreign business investors to take on non-competitive conditions, such as: to participate in the transfer of technology, to meet the requirements for spending on new research and development, to participate in joint ventures, to train and build capacity of local partners or implement corporate social responsibility programs.

Many other papers explore the impact of WTO accession on economic growth, focusing on intermediate variables of trade, exports, total factor productivity, or foreign investment (Chemutai amp; Escaith, 2017). Tang and Wei (2009) say that, in addition to the direct impact of trade liberalization on trade volumes, the WTO gives a stronger impetus to economic growth than unilateral domestic reforms, showing a much higher price than domestic policy. Also, WTO membership opens access to foreign markets, which can be used to “buy” political support from those who were initially against these market reforms. Since WTO accession provides the will to liberalize trade, this has a stronger impact on economic growth than reform alone (Tang amp; Wei, 2009).

Usually, the WTO accession dialogue is negotiated individually, which allows developing countries to adopt commitments to their own political priorities, including poverty reduction. Institutions such as the Committee on Trade and Development, Aid for Trade, and the Fund for Trade Facilitation Agreements (World Bank and World Trade Organization, 2015) that are members of the WTO deal with the issue of poverty reduction in developing countries. Winters (2002) notes in his work that joining the WTO can alleviate poverty through long-term economic growth, but with important criteria, such as the need for market infrastructure and the protection of goods that can be clearly identified with the poor, and the importance of timing. In general, he argues that anti-poverty programs should not be focused on trade, but should fully adhere to the state of solvency of the poor in order not to distort the market and not create dependencies.

2.4 Experience of WTO member countries

The United States, which initiated the creation of a single economic space, hoped to get the maximum benefit from the reduction of tariffs for its goods, in view of the fact that their economy not only remained afloat after the war but also began to rise actively (Dyumulen I.I.,2003, p.376).

Developing countries also rushed to the WTO, where they gladly accepted. It was a mutually beneficial exchange: the countries-producers of highly competitive products needed worldwide sales markets and sources of cheap raw materials, while weaker states needed to import finished goods, and they had no choice but to enter on the set conditions.

But there are countries that, upon joining, were able to defend their interests as much as possible and dictate their conditions. For example, the interesting experience of our neighbor, China, whose negotiations on WTO accession lasted for seventeen years. As a result, the country entered on less favorable terms than those that were specified at the beginning of the journey. However, this had no effect on the possibility of developing technological products, but on the contrary: an unforced entry only played into the hands of China, which gained access to high-tech product markets, the production of which it was able to develop over the years. China needed a market economy, so it took its place in the world. Times have changed. China crosses the river, and if the stone is unstable underfoot, the country takes a step back, and joining the WTO was just such a step towards achieving certain goals. China has placed WTO accession on a par with other policies that have created reserves. Accession to the WTO for China was only one of the experiments that succeeded. (Spiridonov A.I., 2012, p.154.)

By the example of Poland, the main advantages for the economy were revealed, which can be extrapolated with certain reservations to the countries of the post-socialist space, as well as used in the process of preparing the algorithm for countries joining the WTO. The liberalization of the trade and currency regimes in Poland created conditions for free competition not only for Polish goods and services but also for capital (Glazko V.I., 2012, p.206). The competition was significantly intensified due to the fact that Polish producers had to compete both for external (export) and internal consumer. The Polish experience of entering the WTO showed that the industrial goods market has become wide open to competition with foreign suppliers, thus contributing to the high quality of the goods produced by Poland.

Even before joining the WTO, the Georgian market was mainly imported, so prices on the market were adjusted slightly and did not hit the pockets of consumers. In contrast to Georgia, Ukrainian enterprises suffered heavy losses due to the inconsistency of their products with quality standards and the lack of sufficient public funds.

A prominent representative is Armenia, which joined the WTO on the toughest conditions. The countries from the working group demanded that its assistance to agriculture be reduced to zero, which at that time was only $ 4.5 million a year. In the short term, Armenia's accession to the WTO did not have a significant impact on the growth of the republic's exports or on the attraction of foreign investments. However, later on, the state received considerable political and economic benefits from membership in the organization, in particular, the possibility of active integration into the world market at the expense of industries that do not require high transportation costs: information technologies, the service sector, light industry, and food industry. Also in the trade relations of Armenia and Georgia, the WTO played a positive role. Georgia pursued a discriminatory policy towards Armenian goods. Now, taking into account the membership of both countries in the WTO, the issue of equal tariffing has already become the subject of specific discussions between Yerevan and Tbilisi. The trick of the Ukrainian government regarding customs duties can be considered a positive experience. When joining the Ukrainians expected cheaper cars, given the reduction in import duties to 10%. But the Government introduced such duties only for cars with a volume of not more than 1.5 liters and limited the number of imported cars annually, thereby ensuring the demand for products of the domestic auto industry. (Delyagin M.G., 2008).

In connection with such lengthy negotiations and entry into the second hundred, Kazakhstan made significant concessions, however, this also has its advantages. Consideration of solutions to problems gives Kazakhstan to actively use this experience. So Ukrainian agricultural products are constantly rejected by European companies because of the presence of E. coli. To solve this problem, the state has made the purchase of special refrigerators for the transport of milk and meat. As a result, Ukrainian products began to pass into the countries, and Ukraine soon faced a significant increase in exports to the meat and dairy industry.

Based on these data, it can be said that countries faced with the problems of WTO requirements over time became stronger, turning problems into benefits.

3. The background and process of joining WTO of Kazakhstan

3.1 Analysis of economic opportunities of the Republic of Kazakhstan for joining WTO

Becoming a sovereign and independent state, Kazakhstan embarked on the path of transformation, choosing to build market relations as a strategic direction in the economy. The choice of this strategy objectively assumed the presence of a transitional period during which the legacy received from the Soviet economy would be completely transformed and really adapted to the conditions of market relations.

Kazakhstan, during the time of independence, has traveled its own unique path, which enabled it to enter the trajectory of sustainable economic growth and, by now, to create market institutions recognized by the world community. Kazakhstan, which carried out market reforms, took place as a sovereign state and an equal participant in world economic and trade processes. Due to the chosen course of economic policy aimed at structural reforms and the creation of market institutions, Kazakhstan has achieved successful indicators of economic growth.

In the initial period of market transformations, the government's activities were aimed at liberalizing the economy and creating a legislative and institutional framework for market relations, as well as filling the market with consumer goods. The main measures to liberalize the economy were to promptly make the necessary decisions aimed at abolishing state regulation of prices for most types of products and services; removing barriers to the promotion of many products on the world market; organization of banking and customs services; attraction of foreign capital.

In accordance with the adopted programs to deepen reforms and improve the efficiency of the economy, the Government of Kazakhstan has successfully implemented a number of systemic reforms.

Kazakhstan is among the first among countries with transitional economies to form many market institutions: pension and banking reforms have been carried out; legislation was adopted in the field of private property, small and medium businesses, etc.

From the very beginning of adaptation of Kazakhstan to the conditions of the world market system, the need arose for a serious study of foreign experience. This, in turn, contributed to the policy of an open economy, the expansion of international and the establishment of contractual relations with many countries of the world community, as well as international organizations

Currently, Kazakhstan has one of the fastest growing economies in the post-Soviet space, has a high credit rating, and international oil companies are competing for the right to “enter” into the oil industry of Kazakhstan. The various international rating organizations that give an assessment of the cross-country formation of the economic future increase the position of Kazakhstan, the republic’s progress in economic development is recognized.

In the modern competitiveness ranking, according to the Global Competitiveness Report for 2017-2018. World Economic Forum, Kazakhstan took the 57th position among 137 countries of the world, ahead of all the countries of Central Asia (Klaus Shwab 2017).

The successful development of Kazakhstan was largely made possible by the presence of natural resource potential. Possessing significant mineral reserves, the republic, even in the pre-market period, was a traditional supplier of various resources to the countries of the Commonwealth. In the bowels of the country contains almost the entire complex of minerals - fuel and energy, metallurgical, mining ¬ chemical and other types of mineral raw materials. Of the 11 billion tons of minerals mined in the world, the republic accounts for more than 250 million tons, which gives it 11th place. For 37 types of this product, the country ranks from the 1st to the 19th place. The Republic ranks: first in the world in terms of rhenium reserves, second in the world in reserves of chromite, is also the world's largest mining of metals (iron, chromium, ferroalloys, steel, aluminum). In recent years, in the global list of major suppliers, its position has strengthened. Being one of the leading exporters, Kazakhstan sends mineral and mineral products abroad that are in high demand, including: in the USA - zinc, beryllium; to Germany - oil; to Russia - lead, iron ore, pellets.

Kazakhstan is among the top ten countries - leading producers and exporters of coal in the world market, its share in world coal production is about 2%, and in world coal exports is almost 5%.

The special role for the economy of Kazakhstan has reserves of natural uranium, according to which the Republic occupies the 2nd place in the world and the 1st place the country occupies also in the extraction of this raw material. Uranium ore reserves of the country are accounted for 55 deposits, 70% of them are suitable for mining by the method of underground leaching.

Thus, the availability of resource potential and its effective use has become one of the most important prerequisites for the sustainable economic development of the country, its entry into the world economy. It is worth noting that today the world powers are striving to strengthen their leading positions at the expense of the economic presence in the republic. In turn, in its relations with the countries of the world community, Kazakhstan pursues an open policy of using natural resources, ensuring transparent conditions for cooperation based on the preservation of permanent and comprehensive sovereignty over its natural resources.

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