УДК 3;32.019.52
THE PURPOSE OF CREATION “CUSTOMES UNION”
S.S Abdullakh
Suleyman Demirel University
Annotation:
This paper provides an overview of work done and things reached by Customs Union. There are
shown statistics of work done from beginning till today. Answered the questions of how European
Economic Community effects the creation of Customs Union. Finally there are tried to open the purpose
of creation of Customs Union.
Key words: Customs Union, external border,
customs territory
,
customs tariff
Introduction
Formation of the Customs Union (CU) of Belarus, Kazakhstan and the Russian Federation has
become perhaps the most important changes in trade policy in Central Asia in recent years. Kazakhstan
is the largest economy in Central Asia, and Russia is an important trade partner for Kazakhstan and
Central Asian (CA) countries. Any trade agreement with the participation of these two countries can
significantly affect not only themselves, but also their neighbors.
CU started its activity in 2010 from trade in goods between Kazakhstan and Russia and between
the countries of the Customs Union and other Asian countries has increased significantly over the past
two years. For example, the trade turnover between Kazakhstan and Russia in 2011 increased by 28%
compared to 2010 similar rate of growth in trade between the CU and other Asian countries was 19%.
This significant increase in trade may be associated with the creation of the Customs Union and that
may be the thing for which CU was created. This work is going to open the question of purpose of
creation of Customs union by the initiative of Eurasian Economic Community.
36
Fifteen years ago, on January 20, 1995, the presidents of Belarus, Kazakhstan and Russia in order
to eliminate the barriers to mutual trade and recovery of cooperative industrial relations signed a package
of documents on the Customs Union, the objectives of which were set to ensure the free movement of
goods, services and capital, labor and consistent trade, customs, fiscal and monetary policies of the three
countries.
During the period from the date of signing of this regional association has gained an extensive legal
framework. By suggestion of President of the Republic of Kazakhstan NA Nazarbayev, countries
members of the Customs Union developed and adopted the Agreement on Customs Union and Common
Economic space, which was the first major international agreement, introduced concept of building a
harmonious new system of relations in the economic, customs and tariffs, social and legal spheres. [1]
Formation of the Customs Union within the Eurasian Economic Community is an important step in
deepening integration interaction of the community and the creation of a Common Economic space. The
corresponding solution at the international level was adopted on 16 August 2006 according to which the
Customs Union will yet Belarus, Kazakhstan and Russia. It is expected that the other members of the
Eurasian Economic Community will join the Customs Union by the readiness of their economies. State
of the Eurasian Economic Community creates Customs Union on international standards: with a single
external border, a single customs territory and the common customs tariff on goods imported from third
countries. And in this direction are made community appropriate arrangements by countries. Firstly
there was approved the draft Common Customs Tariff, which was introduced from 1 January 2010,
secondly, approved terms of formation of a single customs territory, providing for the implementation
of the Plan for the transfer of all types of control except for the border, for the external border of the
Customs Union. Third, work on the harmonization of the Customs Code, which provides customs
regulation in the common customs territory. However, the establishment of the Customs Union is facing
a number of challenges. The most difficult is the task of unification national legislations of the Eurasian
Economic Community countries in the customs and foreign economic sphere, development of the
mechanism of enrollment and distribution of customs duties and indirect taxes to the state budget, the
formation of a single trade regime. For These Reasons relevance is the development of a mechanism to
ensure the functioning of the Customs Union and the implementation of countries coherent foreign
economic activity. The Customs Union is a definite step in the economic cooperation States. Regional
integration in the development of pro-walking the steps of:
- A free trade area;
- Customs union;
- The common market;
- An economic union;
- Political union.
At each stage are eliminated economic barriers between countries within the integration association,
as a result of the boundaries of the integration block formed a single economic space. All participating
countries benefit from the development of mutual trade, increase the efficiency of the figure of
enterprises and lower public spending on customs control.
The creation of a free trade zone implies the elimination of tariff barriers and quantitative
restrictions in foreign trade provides for the gradual abolition of mutual duties and other restrictions.
"Countries voluntarily refuse to protect their national markets in relations with its partners in the
framework of the association, but in relations with third countries, they are not acting collectively and
individually. Maintaining its economic sovereignty, each participant sets its free trade zone to trade with
countries not participating in this integration association"[2]
The Customs Union is a contractual association of states in order to create a common customs
territory and the implementation of the common trade policy. General customs territory is created not
only by eliminating the boundaries between members of the union, but also by establishing a unified
customs tariff and a common external customs border alliance with countries not members. Joint
37
customs policy, the establishment of a unified customs tariff and its regulation, representation of the
Union in its relations with third countries and international treaty union capacity is generally carried out,
specially created for this union bodies. Only when all of the elements in their entirety can talk about the
existence of a real customs union.[3]
Customs Union involves a substantial simplification of customs procedures and creates the
conditions for free movement of goods. “The efficiency of removal of customs and trade barriers, based
from the experience of the European Union”. Before the creation of a single internal market within the
EU every year to border formalities spends about $ 9 billion, or 1.2% of all trading between countries -
EU members. And in all these formalities industry (in the absence of a unified system of technical
standards) and other trade restrictions treated at 40 billion crowns. Simplification of rules between
countries community (1 July 1993) allowed to abolish customs procedures 50-60 million per year. [4]
The most important task of the Customs Union is their entry into the WTO. According to many
experts, the formation of the Customs Union should be based on WTO law. "Then we will be able to
adjust certain agreements relating to the common customs tariff, non-tariff regulation mechanisms by
adjusting them under WTO rules. ... We cannot here to choose "either-or", we must act according to the
scenario and the WTO, and the Customs Union»
The implementation of the above directions suggests advancing the process of formation of the
Customs Union with Kazakhstan, Russia and Belarus will create real conditions for the free movement
of capital and improve the competitiveness of national economies of the Eurasian Economic
Community. The creation of a single customs territory, trade liberalization within the Customs Union
and the formation of a single economic space perspective will stimulate the expansion of international
industrial cooperation within the Eurasian Economic Community, as well as to influence the
development of industrial complexes and the economies of the community as a whole. [5]
eference
1.
Rahmatulina, G.G. et al (2009) ТАМОЖЕННЫЙ СОЮЗ БЕЛАРУСИ, КАЗАХСТАНА И
РОССИИ: СОСТОЯНИЕ, ПРОБЛЕМЫ, ПЕРСПЕКТИВЫ. Almaty: Казахстанский институт
стратегических исследований при Президенте Республики Казахстан.
2.
Latov, U. EKONOMICHESKAYA INTEGRATSIYA. Энциклопедия Кругосвет. [Online]
Available
from:http://krugosvet.ru/enc/gumanitarnye_nauki/ekonomika_i_pravo/EKONOMICHESKAYA_INT
EGRATSIYA.html?page=0,0. [ Accessed: 6
th
April 2015]
3.
Hasbulatova, R.I., Gardariki, M. (2006) Мировая экономика и международные экономические
отношения.
4.
Mansurov, T.A. Business forum of Eurasian Economic Community. [Accessed: 7
th
of April 2015]
5.
Shestakov, G. (2009) Создание таможенного союза — это политическое решение. (p.25-26).
УДК 3:001.83(100)
FOREIGN INVESTMENTS IN KAZAKHSTAN: PROBLEMS AND
PROSPECTS
Kudaibergenova D.M.
Suleyman Demirel University
Abstract. This paper investigates the current condition and trends in the development of foreign
investments activities in Kazakhstan as well as identifies the problems of political, legal and financial
38
spheres of Kazakhstan that deteriorate the image of the country for foreign investors. Below analysis of
gross inflow of direct investments over the period from 2005 to 2014 can be found. Also, the
attractiveness of investment climate of Kazakhstan has been examined by developing SWOT analysis
and needed measures were suggested to overcome weaknesses of Kazakhstan’s investment policy.
Key words: Foreign Direct Investments (FDI), investment climate, gross inflow of foreign
investments, SWOT analysis, manufacturing sector of the economy.
Investments play a crucial role in maintaining and enhancing the economic potential of the
country. This, in turn, is beneficial to the activities of enterprises, leads to growth of the gross domestic
product of the state and, also, gives an opportunity to perform on international market. As a result,
developing countries, emerging economies and countries in transition have come increasingly to see
investments as a source of economic development and modernization, income growth and employment.
In the most general sense, the concept of "investment" means a long-term contribution of funds to
the various sectors of the economy or to the objects of entrepreneurial and other activities or to the long-
term projects in order to receive profit and achieve individual goals of investors or reach positive social
effect. [1]
Foreign investments – are all types of property and intellectual values invested by foreign investors
in objects of entrepreneurial and other activities for profit. [2]
Foreign direct investment (FDI) – is an investment made by a company or entity based on one
country, into a company or entity based in another country. Foreign direct investments differ
substantially from indirect investments such as portfolio flows, wherein overseas institutions invest in
equities listed on a nation's stock exchange. Entities making direct investments typically have a
significant degree of influence and control over the company into which the investment is made. The
accepted threshold for a foreign direct investment relationship, as defined by the OECD, is 10%. That
is, the foreign investor must own at least 10% or more of the voting stock or ordinary shares of the
investee company. [3]
Gross inflow of direct investment includes: an increase of equity (purchase of at least 10% of the
voting shares or shares in Kazakhstani enterprises by non-residents, purchase of real estate in
Kazakhstan by non-residents); reinvested earnings: share of foreign direct investors in undistributed
income (loss) in Kazakhstani enterprises; increase of debt instruments: flow of funds from foreign direct
investors (both in cash and another form - as goods, servises, intangible assets, purchase of securities
and so on) without amortization.
Kazakhstan as one of the developing countries started to focus on investments, as well. Moreover,
attracting foreign investments in Kazakhstan's economy is a necessary process, especially in non-oil
sector of the economy, because nowadays
Kazakhstan faces the challenge of "middle-income trap,”
which means that after reaching a certain level of GDP in the range between $10 thousand and $15
thousand per capita economic growth may slow down due to rising wages, increasing transaction costs
and decrease in price competitiveness. In this position, Kazakhstan will not be able to compete with both
39
the developed economies with high skills and innovation, and with the economies of low-income, low-
wage and low-cost production of goods. Countries such as Taiwan, South Korea, Finland and others that
experienced the same trend overcame this barrier by accelerated development of manufacturing sector
of economy. According to Kojima K., these countries did so well due to the process of attracting foreign
investments, because the inflow of investments exactly is the driving force of diversification of economy
and development of technological innovations. [4]
So, at the moment one of the main goals followed by Kazakhstan is to create favorable investment
climate in order to attract foreign investors. However, country faces some obstacles that prevent the
process of attraction of investors. These problems and prospects of foreign investments are discussed
below in this article.
Current condition and trends in the development of investment activities in Kazakhstan
According to the United Nations Conference on Trade and Development, Kazakhstan occupies
19th place in the top twenty leading countries in terms of attracting foreign direct investment in 2012
with almost $28.9 billion of overall inflow of investments.
As shown in Table 1, from 2005 to 2014 in the economy of Kazakhstan there were attracted
approximately 207 billion US dollars of Foreign Direct Investments. As for average annual growth rate
of total FDI, from 2005 to 2014 it equaled 17.4%. However, in 2014 total inflow of investments in
economy equaled approximately $24 bln, which is by 1% lower than results in previous year and by
17% lower than in 2012.
By economic activity during this period professional, scientific and technical activities accounted
for the largest volumes of inflows of FDI - $ 76.5 billion (37%), mining and quarrying sector - $ 55.4
billion, which is 27% of the whole period inflows, investments in manufacturing sector equaled $ 23,7
billion (11%), wholesale and retail trade, repair of motor vehicles and motorcycles - $ 17,7 billion that
is about 8.5 % of the total investments for the whole period.
As for, priority sector of economy of Kazakhstan, the average annual growth rate of total FDI in
the manufacturing industry from 2005 to 2014 was 36%. However, in 2011 reaching the peak of $ 5.5
bln, inflows of investments in manufacturing sector declined by 55% in 2013. But in 2014 it increased
by 48% and equaled $ 3.7 bln.
By economic activity in 2014 the largest volumes of FDI inflows were invested in mining and
quarrying sector – about $ 8.5 billion (36% of total investment inflows in 2014), in professional,
scientific and technical activities investments inflows equaled $ 5.9 billion (25%), wholesale and retail
trade, repair of motor vehicles and motorcycles - $ 2.7 billion (11%), manufacturing - $ 3.7 billion
(16%). [5]
Thus, it is clear that overall investment inflow in 2014 decreased, however investments in mining
and manufacturing rose by 13% and 45%, respectively. Despite significant increase in manufacturing
sector, mining industry remained the leader in attracting foreign investments.
40
In Table 2, it is shown top 10 countries with the largest volume of investments in Kazakhstan. The leading
position is occupied by Netherlands with about $ 7 bln volume of investments in 2014 which is 29% of total
volume of investment inflows and average growth rate of 19%. The second one is the USA with volume of
investments equaled $4 bln in 2014(17%) and average growth rate 21%. And Switzerland occupies the third place
with volume of investments – $2.4 bln(10%) and with the highest growth rate equal 84%. Also, China and Russia
showed an increase in volumes by 33% and 30%, respectively. So, it is clear that in 2014 most of the states-
investors with the highest volumes of investments in Kazakhstan decreased their investments. Nevertheless,
overall growth rate in 2014 equaled 8%.
Regarding the outflows of investments, during the period from 2005 to 2014, the gross outflow of FDI
from Kazakhstan abroad totaled $ 45.8 billion. In 2014, it equaled $3.2 bln, which is lower than in 2013 ($8.7
bln) by about 63%. So, in comparison with inflows of investment that equaled $207 bln for the period, outflow
by 78% lower. Nevertheless, the issue of outflow of investments from country is the problem on which many
governments focus now.[6]
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Table 1.
Gross inflow of direct investment in Kazakhstan from foreign direct investors: breakdown by
residents'
types
of
economic
activities
Gross inflow of direct investment in Kazakhstan from foreign direct investors includes:
- increase of equity: purchase of at least 10% of the voting shares or shares in Kazakhstani enterprises by non-
residents, purchase of real estate in Kazakhstan by non-residents
- reinvested earnings: share of foreign direct investors in undistributed income (loss) in Kazakhstani enterprises
- increase of debt instruments: flow of funds from foreign direct investors (both in cash and another form - as goods,
servises, intangible assets, purchase of securities and so on) without amortization
Sources: National Bank’s Database
Types of economic activities
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
AGRICULTURE, FORESTRY AND
FISHING
1,32 37,56 18,44 38,50 5,63 5,97 7,79 18,31 5,33 - 6,08
MINING AND QUARRYING
1 930,09 3 718,62 6 124,57 3 982,11 5 001,50 5 982,21 5 446,33 7 314,50 7 457,97 8 480,31
MANUFACTURING
346,55 679,12 1 081,45 2 131,26 1 826,63 2 243,81 5 658,23 3 460,97 2 532,17 3 748,69
ELECTRICITY, GAS, STEAM AND
AIR CONDITIONING SUPPLY
119,60 26,80 36,63 130,32 525,84 101,71 123,50 261,67 300,65 187,88
WATER SUPPLY; SEWERAGE,
WASTE MANAGEMENT AND
REMEDIATION ACTIVITIES
- - - - 0,15 0,35 9,46 0,10 - 5,88 4,10
CONSTRUCTION
134,00 264,73 338,41 351,66 1 002,20 928,26 1 134,96 1 320,65 1 033,54 798,98
WHOLESALE AND RETAIL
TRADE; REPAIR OF MOTOR
VEHICLES AND MOTORCYCLES
386,46 765,11 1 251,40 1 323,74 2 349,95 1 521,76 1 627,25 2 625,28 3 153,37 2 731,11
TRANSPORTATION AND
STORAGE
470,01 241,43 211,00 142,03 179,26 111,20 331,76 416,61 397,91 743,36
ACCOMMODATION AND FOOD
SERVICE ACTIVITIES
6,18 16,12 49,99 37,30 93,83 58,43 45,89 77,14 - 69,15 135,71
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