Kazakhstan unhappy with the Customs Union

Kazakhstan has blocked the extension of import duties on grain harvesters.

Kazakhstan is increasingly unhappy with the Customs Union (CU). Unlike the Russian and Belarusian economies, the Kazakh economy has no need of protective measures against high-quality imported goods. Kazakhstan may request the revision of some major agreements within the Customs Union framework. Perhaps it will not leave the CU, but it may significantly reduce the pace of integration.

Feeling dissatisfied with the Customs Union, Kazakhstan has blocked the extension of import duties within the CU and replaced them with quotas for the imports of grain harvesters.

Kazakhstan also has complaints about the mechanism of import duties’ distribution within the CU. In 2013, Kazakhstan paid USD 160-170 million more into the CU countries budgets than it received under the agreement on the distribution of import duties in the CU. The only thing that stops Kazakhstan from launching a revision procedure under this agreement is surplus in payments received in 2010 and 2011. It can also raise the issue of consistent surplus of payments to Belarus within the framework of that agreement. One of the major issues for Kazakhstan – oil supply swap agreements between Russia and Kazakhstan – has not been resolved either.

Kazakhstan’s industry structure differs fundamentally to that of both Belarus and Russia. In H1 2013, oil and gas extraction accounted for 51.4 % of the total volume of industrial production in Kazakhstan (in Russia – 23.1 %). Moreover, the share of oil refinery in the economy is insignificant. Kazakh farmers are also unhappy with the quality of equipment produced in Russia and Belarus. In fact, Russian and Belarusian producers are trying to divide the Kazakh market among themselves, limiting access for other competitors.

Kazakhstan sees no more advantages from cooperation within the CU. Kazakh people are unhappy about growing prices due to the closure of borders with China. Poultry producers are unhappy about the dominance of Belarusian and Russian producers, which secretly divided the Kazakh market. There are virtually no joint projects, the few joint ventures which had been planned never started operations, some lack economic feasibility in general. Simultaneously, Russia forces Kazakhstan to impose various restrictions on the imported goods, e.g. the recent situation with Ukraine. Therefore Kazakhstan tries to implement certain measures, which relate to its unhappiness about the CU realm.

Thus, the contradictions between the Customs Union members are growing. The future of the Customs Union will depend on its members’ satisfaction with the performance results. If their dissatisfaction grows, disintegration might start.