Skip to main content

Kyrgyzstan: Integrate or not?

Globalization has always been a topic of hot debates. As from Kyrgyzstan’s perspective, I think that globalization here may have had a twofold effect. While the membership in World Trade Organization (WTO) has had some benefits, the dilemma for today is about the costs and benefits for Kyrgyzstan after its possible accession to the Customs Union (CU), consisting of Belarus, Kazakhstan and Russian Federation. It is the most recent trade policy change in the region of Central Asia. Whether joining the CU will be a further step for Kyrgyzstan to better integrate into the global economy or will derive from globalization creating protectionist regional economic block is a matter of time.
Kyrgyzstan is one of the five Central Asian post-Soviet countries. Since the collapse of the USSR and after gaining its independence, Kyrgyzstan actively started to integrate into the global economy by signing the bilateral agreements with countries and becoming a member of several preferential trade agreements with Commonwealth Independent States (CIS). Furthermore, Kyrgyzstan was one of the first Central Asian countries to join the WTO.[1]
Joining the WTO benefited in greater free trade. China being geographically the closest WTO member country contributed to lower prices of goods for Kyrgyz consumers. Kyrgyz consumers have experienced a greater choice of goods. This membership opened a niche for re-export of goods. Entrepreneurs found this activity - to import cheap goods from China and resell them to the neighbor countries, very profitable. Re-export has increased people’s incomes and provided employment for many citizens.[2]
The consequence for Kyrgyzstan from adopting next possible trade policy – accession to the Customs Union is still unclear. On the one hand, by joining the CU may indicate the country to become a protectionist, but meantime, this policy may increase the trade flows within the CU countries and thus, the country will experience more economic integration within the Union. The costs of this step might be the welfare of local producers, but on the benefit side is the welfare of consumers. It may hurt local producers as a result of the flow of foreign supplies. In the union of developed and less developed countries, the latest lose due to unprotected infant industries and flow of foreign goods into domestic market. In the case of Customs Union of Belarus, Kazakhstan and Russia, Kyrgyzstan will be the smallest economy in the union. This can bring certain benefits to the country, such as increase in trade and reduction of unemployment. Roman Mogilevskii examined that trade turnover between Kazakhstan and Russia in 2011 (1 year after creation of the CU) increased by 28% in comparison to 2010, and the 2011/2010 growth rate between the Customs Union and other Central Asian countries is 19%. He however suggests that this change may also be due to the recovery from the economic crisis in 2008 – 2009[3]. Potential benefit might be a decreased unemployment rate in Kyrgyzstan. More jobs may be created due to cheaper labour costs in Kyrgyzstan. Greater movement of labour may help to reduce geographical inequality. Unemployment rate in 2013 in Kyrgyzstan was 8.5%, while in Kazakhstan and Russia it was around 5% and less than 1% in Belarus.
However, Kyrgyzstan might play a role of a supplier of raw materials after joining the CU. Increase of exports of raw materials would limit our own processing industry and country will have to import its own products but at a more expensive price due to processing and adding value in CU partner countries. Higher standards for labeling and packing requirements, sanitary measures, veterinary measures, standardization and accreditation are all going to make it tough for domestic firms to compete. Considering these consequences, strategies to stimulate the growth of processing industries may help to overcome the problem in the long run.
Kyrgyzstan applies a highly liberalized trade regime. It has trade regimes with CIS countries, preferential treatment for the Least Developed Countries and the Most – Favored National Treatment for the WTO member. Kyrgyzstan needs to be more pragmatic at the negotiation stage for accession to the CU. Trade policy represents the international dimension of national policies adapted for domestic reasons[4].Proper calculations and accordingly, adoption of right domestic policies may lead Kyrgyzstan although to less integration with the whole world, but definitely to more integration with CU members. Upcoming trade policy – accession to the Customs Union of Belarus, Russia and Kazakhstan can thus play a crucial role for Kyrgyzstan.
In the scenario where Kyrgyzstan won’t join the CU, it will have more options for further integration into the global economy or else deepen its economic relations with WTO partner countries.




[1] Kyrgyzstan became a member state of the WTO on 20th of December, 1998.
[2] Roman Mogilevskii, Re-export Activities in Kyrgyzstan: Issues and Prospects (Bishkek: University of Central Asia, 2012).
[3] Roman Mogilevskii, Customs Union of Belarus, Kazakhstan and Russia: Trade Creation and Trade Diversion in Central Asia in 2010-2011 (Bishkek: University of Central, 2012).
[4] Walter Goode, Dictionary of Trade Policy Terms (World Trade Organization, Fifth ed., 2007).

Comments

Popular posts from this blog

История о том как открыть бизнес в отдаленном регионе Кыргызстана

Недавно я побывала в Баткене и вдохновилась тем, как некоторые люди, стремясь к лучшей жизни и имея предпринимательский дух начинают создавать свой бизнес и, тем самым способствуют развитию своей местности. 47-летняя Жолболдуева Гульнара Токтобаевна известная в городе Баткен женщина-бизнесмен. Гульнару эже знают практически все в Баткене и за его пределами. Иностранные туристы и сотрудники международных, государственных организаций останавливаются у нее в гостинице «Алтын-Бешик » . Гостиница открылась 10 лет назад, в октябре 2006 года. Из-за большого количества гостей в доме Гульнары эже ее дети предложили написать снаружи дома «гостиница». Толчком послужил еще и тот факт, что приехали гости из Бишкека и остановились у нее, у которой на тот момент еще не была сформирована гостиница. Они предложили улучшить условия проживания, поставить кровати и протянуть в дом канализацию. Она последовала их советам. Открылась гостиница с одним санузлом на 5 коек. Далее люди начали с...

Armenia and Eurasian Economic Union

Eurasian Economic Union (EAEU) of Russia, Belarus and Kazakhstan is an emerging union that is gaining more actuality and relevance in the post-Soviet territory with joining of additional countries as Armenia and Kyrgyz Republic. While it was seen as another not effective project of post-Soviet Union, it appeared to be a new-style project bringing tangible gain to its members and becoming a center of attention in the neighborhood and a viable alternative to the EU (Dragneva and Wolczuk, 2015). While some Central Asian countries as Kazakhstan and Kyrgyz Republic have been analyzing their costs and benefits by joining the EAEU, Caucasian countries (Armenia, Azerbaijan and Georgia) have been planning to join the EU.  Armenia is a small landlocked former Soviet Union country with population of around 3 million people. With an estimated per-capita GDP of US$ 3,619, Armenia is a lower middle-income country. After the dissolution of the Soviet Union, Armenia experienced a difficult...

Intro to Franchising

The world leader in franchising is the United States of America. Franchising takes a big part of the business in the US. Among the rankings of the franchises in 2010, on the first place was Subway, the second place took McDonald's and the third place was taken by 7-Eleven. From this top list of franchise companies around the globe, we see that all of them are US franchise companies, and 2 out of 3 companies are involved in fast food industry. And this is not surprising as there are many advantages of running a fast food franchise. The most important one is that there is a same developed menu in each branch that the clients are aware about. As an example, let's say a person traveling from Seattle to Kansas city does not know good places to eat out and in order not to be disappointed she/he will choose to go to a familiar Subway or McDonald's for example. There are notable advantages as to the franchisee, so to the franchiser. Thus, a franchisee gets the rights fo...