The Central Asia Caucasus Institute (CACI) at SAIS hosted a forum on Wednesday, June 4, 2008, in the Rome Auditorium.

The forum featured the Honorable Zhanar Aitzhanova, Deputy Minister of Industry and Trade and a leading negotiator for Kazakhstan; H.E. Erlan Idrissov, Ambassador of Kazakhstan to the United States; and William Veale, Executive Director of the U.S.-Kazakhstan Business Association (USKBA). Professor S. Frederick Starr, Chairman of the Institute, introduced the forum’s speakers to the audience.

Listen to audio of event HERE.

Provided its national economic interests are adequately reflected in the terms of its accession to the WTO, Ms. Aitzhanova began, Kazakhstan may conclude negotiations by the end of the year. It has already finalized bilateral negotiations with twenty countries, and only the United States, the European Union, Australia and India remain.

A few figures provide an overview of Kazakhstan’s economic development. In 2007, its GDP rose by 8.5%. Its volume of industrial production has increased by 4.5%; processing industries constitute 23% of its GDP. Foreign direct investment totals $69 billion US – 11% of which has been invested in processing industries in agricultural and industrial sectors. In 2007, foreign direct investment increased by 60.5%. Its total foreign trade turnover was $80.5 billion US – a threefold increase from 2003. Crude oil and minerals, however account for approximately 70% of Kazakhstan’s exports to world markets, signaling one of the country’s major challenges: the need to diversify its economy.

Kazakhstan has, in the past two decades, expanded its trading reach substantially. In the early nineties, its major trade partners were states from the CIS region; as of 2007, they are now member states in the European Union, followed by Russia, China and Switzerland. Trade with the EU accounts for 37% of Kazakhstan’s total, as opposed to 21% with Russia and 10% with China.

The Kazakh government, Aitzhanova explained, is taking extensive measures to diversify its economy and improve its investment climate. Investment laws passed in 2003 adhere to nondiscrimination principles and create a level playing field for domestic and foreign investments; incentives are granted to both, provided they are directed towards priority economic sectors such as food processing, machinery and textile production, information technology, construction, tourism, and transportation. Incentives include corporate income, property and land tax exemptions for five to ten year terms, and custom duty exemptions on select imports in non-energy sectors. The government has also eliminated the double-tax on corporate dividends; it has eliminated licensing requirements on currency transactions, and simplified transaction passport issuing terms. In 2004, Kazakhstan adopted new laws conforming safety regulations to WTO rules on technical barriers to trade; Kazakhstan has also changed its tax code and licensing and business registration requirements in compliance with WTO norms. It has implemented internationally recognized accounting and reporting standards; eliminated, in 2005, restrictions on foreign participation in banking and insurance sectors; fostered a competitive market in its telecommunications, transportation and energy sector; and liberalized its trade policies through lowered import duties.

Kazakhstan faces several key challenges in the WTO accession process. To sustain economic growth, Aitzhanova observed, Kazakhstan must be able to legislate, contrary to WTO mandates, “local content” provisions to direct investments into its energy sector towards supplementary, non-energy goods production industries and services such as local machinery production and chemical industries. The country’s diversification efforts demand the retention of such policies within a sufficient transitional timeframe for local industries. The WTO has also requested third-party access to Kazakhstan’s existing energy pipelines, and a favorable investment climate for the construction of new pipelines. Kazakhstan shares, with its negotiating partners, the goal of diversified export destinations, and to that end will maintain its commitments to the Energy Charter Treaty and unprovisional, non-discriminatory access to its pipelines after its accession to the WTO; but will not make such commitments on a non-reciprocal basis. Finally, Aitzhanova concluded, it is crucial that foreign and domestic companies will be committed to invest in and develop Kazakhstan’s human resources through training and recruitment procedures. Though Kazakhstan’s natural resources may diminish over time, sustainable economic and social development will depend on such investments into its human resources.

Next, Ambassador Idrissov spoke briefly on Kazakhstan’s general approach to its WTO negotiations: “We do not,” he explained, “want to have a situation in twenty years when resources are depleted, the fuels are depleted, and nothing is left there, foreign companies have left, and we do not have anything.” The advantages of WTO accession are subject to a range of geopolitical and economic considerations – for instance, its enormous hundred fold disparity in population with neighboring Russia -  and will be evaluated in terms of Kazakhstan’s long-term interests. Idrissov expressed his hope that Western nations would attend to the uniqueness of Kazakhstan’s circumstances, and not be overtaken by simple technical approaches to the accession process.

The Central Asia-Caucasus Institute is a leading center conducting fundamental and applied research on an important world region. It has offices at SAIS (Johns Hopkins University), Washington, and in Stockholm, Sweden, through a Joint Center with the Silk Road Studies Program (Institute for Security and Development Policy). This Joint Center publishes the Central Asia-Caucasus Analyst (cacianalyst.org), the China and Eurasia Forum Quarterly, and the Silk Road Papers as well as books and monographs. Additional information about the Joint Center is available at www.silkroadstudies.org .