BOFIT Weekly Review 2015/33
Kyrgyzstan becomes newest member of Eurasian Economic Union; Kazakhstan completes WTO accession talks
The Eurasian Economic Union (EEU), which includes Russia, Kazakhstan, Belarus and Armenia, welcomed the entry of Kyrgyzstan on Wednesday (Aug. 12). The impact from Kyrgyzstan’s joining should be modest as it is the smallest and poorest of the EEU economies. Free movement of labour will be one of the important benefits for Kyrgyzstan, where wages earned abroad (mainly from Russia) account for a quarter of GDP.
In related news, Kazakhstan wound up nearly 20 years of WTO accession talks in June. WTO members in July approved the terms of Kazakhstan’s admission. Kazakhstan has until the end of October to ratify its WTO agreement, under which the country’s commitments include reducing the average import duty to 6.1 % and ending restrictions on foreign ownership in several branches of the service sector. With Kazakhstan’s WTO membership a done deal, Belarus now stands as the only EEU member outside the WTO.
Reconciliation of EEU membership with WTO commitments brings new challenges for the EEU countries. Kyrgyzstan has been a WTO member since 1998. Kazakhstan’s WTO talks were at an advanced stage already when the EEU’s predecessor customs union was established. As a result, both countries have tariff commitments to WTO members that are partly lower than the external duty levels of the EEU.
Russia is worried about imports from third countries outside the EEU entering via Kazakhstan, which has lower import duties. Kyrgyzstan is worried that higher import duties from EEU membership will hurt its economy, as over half of the country’s imports come from China. Russia has promised Kyrgyzstan $500 million to cover integration costs.
More talks will be needed to reconcile the duty levels. In a similar case, Armenia’s accession to the EEU at the start of this year caused its import duties to rise, forcing the country into a new round of talks in the WTO on compensatory measures.