St. Petersburg, 21 September 2011. The joining of Kyrgyzstan to the Customs Union may have positive economic effects for Eurasian integration. However, this process will include problems that need to be taken into account. These are the main conclusions of a study into the economic effects of the country joining the Customs Union and the Common Economic Space of Belarus, Kazakhstan and Russia. The study has been initiated by the Eurasian Development Bank’s (EDB) Centre for Integration Studies and conducted by the National Development Institute of the Russian Academy of Sciences’ Social Sciences Division with the assistance from the centre.
In April 2011, the Kyrgyz government decided to launch the procedure for Kyrgyzstan joining the Customs Union and the Common Economic Space. This August Kyrgyzstan became a fully fledged member of the EDB.
“This detailed technical analysis of Kyrgyzstan joining the Customs Union is necessary to back interstate negotiations with figures,” said Evgeny Vinokurov, Director of the EDB Centre for Integration Studies. “The research has shown both positive and negative effects for the economy of Kyrgyzstan and the Customs Union member states and the effects for Kyrgyzstan’s membership of WTO.”
“The obvious positive effects for Kyrgyzstan include the expansion of the market for its products as a result of the country’s integration with a large regional economic formation,” says Vladimir Yasinsky, EDB’s Head of Research. “This will improve the country’s investment attractiveness for launching new production in its territory, the structure of employment, and tax revenues.”
The positive effects for the Customs Union member states include the improved customs procedures on the China-Kyrgyzstan border, which will reduce price pressure exerted on the Customs Union producers by their Chinese competitors.
However, there is a risk that Kyrgyzstan will lose its attractiveness as a focal point for re-exporting Chinese goods to the Customs Union and that trade flows through its territory will decrease and people working in this sphere will lose jobs. The Customs Union’s common customs tariff on imports will raise their prices in the country by almost 2%. The reduction in re-exports and the increases in prices of imported raw materials and components can decrease currency inflows, intensify pressure on the national currency, and worsen the trade balance deficit.
A certain obstacle for Kyrgyzstan joining the Customs Union is that it needs to hold additional negotiations with WTO, of which it is a member. The joining of Russia and Kazakhstan to WTO can help resolve the issue of Kyrgyzstan’s membership of the Customs Union.
The report and presentation on the research are available at the Bank’s website at:
https://eabr.org/rus/publications/initiative/index.wbp?article-id=AE758784-EE9B-4A99-A2A8-B95BD30980DD
