Economic Relations between Kazakhstan and Russia

term “outer borders” taken to mean the sectors of the border between our

countries and the states that are not part of the CIS. The edict of the

president of Kazakhstan dated September 19, 1995 On the Lifting of Customs

Control on the Border between the Republic of Kazakhstan and the Russian

Federation concludes the first stage in the formation of the Customs Union

and orders the implementation of joint customs controls on the Kazakhstan

and Russian sectors of the outer borders of the Customs Union.

At the second stage of the formation of Kazakhstani-Russian-

Belorussian economic efforts to form a customs union, the most important

areas of cooperation are a closer coordination of economic reforms;

harmonization of civil and economic legislation; unification of currency,

tax, and price regulation by the state with the aim of leveling out the

economic and legal conditions for the activities of commodity producers

within a unified customs space; working out coordinated positions of the

members of the Customs Union in relations with third countries and

international organizations. At the meeting of heads of CIS countries in

November 1995, three more countries stated their desire to join the Customs

Union: Kyrgyzstan, Uzbekistan, and Tajikistan. Later, only Kyrgyzstan went

through with the necessary procedures and entered the Customs Union.

Another example of collaboration in the field of integration is the

agreement on the Baikonur space vehicle-launching site, which makes it

possible to use this great scientific and technological facility in the

interests of Russia and Kazakhstan, as well as documents on the issues of

citizenship signed by the presidents of Kazakhstan and Russian.

Let us consider in somewhat greater detail the problems of

citizenship, of which the solution on a bilateral basis was also outlined

in the draft project of the EAU.

Issues of citizenship became particularly prominent at the time of the

emergence and building of sovereign independent states after the

disintegration of the USSR, when tens of millions of former Soviet citizens

overnight ended up outside their "historical homelands." This problem is as

topical for Kazakhstan and Russia as for other CIS countries. More than

that, it often figures as one of the most important issues of bilateral

relations with Russia.

The more acute aspects of this problem were lifted as a result of the

signing in January 1995 by the presidents of Russia and Kazakhstan of a

treaty on the legal status of citizens of both countries living on the

territory of the other state and of an agreement on simplified procedures

for acquiring citizenship in moving from one country to another. Well-known

specialists from the two countries worked fruitfully on these documents.

Authoritative Kazakhstan! and Russian politicians and jurists believe that

these are innovative agreements without parallel in the world, and they are

a fairly rare example of regulating bilateral issues on a civilized basis.

The importance of these agreements both for progressive development of our

countries and for normal life of the citizens of Kazakhstan and Russia

cannot be exaggerated.

These documents envisage the introduction of maximally simplified

procedures for acquiring citizenship and for movement without visas; they

also offer possibilities for contract work and military service; assert the

rights of possession, use, and disposal of property; create conditions for

exchange of currency and transfer of sums of money by individuals and

corporate entities of Kazakhstan and Russia; and many other provisions

which reliably protect the rights and interests of the citizens of the two

countries.

Yet another sphere in which combining the efforts of all the

interested parties is needed is the legal status of the Caspian Sea.

The position of the Republic of Kazakhstan on this issue is based on

the need for an early drafting and signing of a convention on the legal

status of the Caspian Sea, of which a draft was worked out by the

Kazakhstan foreign ministry and sent out to all the interested states as

early as March 1994. Unfortunately, there has been no response to this

initiative for quite a long time now, and the agreement on regional

cooperation on the Caspian Sea issue is still at a standstill.

At the same time preserving this unique object of nature is a task that the

present generation must be worthy of.

The events of the recent years thus prove conclusively the need to

proceed to a new level of integration, which will fully conform to the

vital needs of the peoples. International experience shows that any

interstate association goes through various states in its development,

becoming enriched in the process with new forms of cooperation. The

Eurasian Union should be seen as just one of such transitional forms

capable of optimizing the solution of the problems facing the Commonwealth.

From the time of the publication of the draft EAU project, politicians

and scholars have been paying close attention to it. Four major scientific

and practical conferences were devoted to this subject, as were hundreds of

publications in Kazakhstan, Russia, and other states. Politicians,

scholars, and diplomats continue to study the EAU project with great

attention.

The current period in history is characterized by a radical breakdown of

the old way of life. Society now faces difficult issues, and each person is

subject to serious trials It is quite natural under these conditions that

the peoples of Kazakhstan, Russia, and other countries with an interest in

the unification of the Commonwealth will find it easier to overcome these

difficulties together. A balanced attitude toward the past, a persistent

realization of the present potential, and confidence in a more certain

future - only these things will be able to give the peoples of our

countries a natural feeling of spiritual harmony and a sense of full-

blooded life.

History is offering us a chance to enter the 21st century in a

civilized manner. One of the ways to achieve that, in my view, is the

realization of the integration potential for the establishment of the

Eurasian Union, which will reflect the objective logic of the development

of the post-Soviet space and the will of the peoples of the former Soviet

Union to achieve integration.

This is how President Nazarbayev, the author of the Eurasian project,

characterized the development of this idea and his current vision of its

future: "I still remain an adherent of integration of post-Soviet space. As

I formulated my vision of integration I laid no claims to total realization

of all the provisions of the project, being fully aware of all the

political connotations of that period. Two considerations were my primary

motivation. First, I wanted to generalize within a single whole the most

realistic proposals for further integration, which simultaneously appeared

in the countries of the post-Soviet space. Second, I wished to interrupt

the indecently drawn-out pause in the activities of the CIS institutions.

In the last two years there was movement in the CIS countries on some

issues that had been at a standstill, including

4. VITAL PROBLEMS OF THE PRESENT-DAY STATE OF KAZAKHSTANI-RUSSIAN RELATIONS

The Present State and Prospects for Economic Cooperation between

Kazakhstan and Russia.

The top priority area of Kazakhstan’s policy in foreign trade is the

strengthening of economic cooperation with Russia and consistent

integration of the economies of the CIS countries. This is determined by

the traditionally strong economic links, a high level of mutual

complementarily and interdependence of two economies of a once unified

state, the size of the commodity market and identify of economic problems

awaiting solution. “Analysis of the results of development of the economy

of the former USSR and of experiences of economically advanced nations,”

President Nazarbayev stressed, “shows that the transition to the market is

objectively necessary and historically inevitable.”

The main feature of the present-day situation in Kazakhstan is the

increasing impact of the mechanisms that have evolved in the years of

reform and a weakening of the effect of non-market factors. In the initial

stages, the underdeveloped state of such important instruments of the

formation of the market as privatization, de-monopolization, absence of a

competitive environment, were the main sources of inflation in the

republic, a worsening state of the finances of enterprisers, an acute

shortage of turnover capital, a fall in production due to falling demand

and real earnings of the main mass of the population, as well as growing

abuses in trade and banking structures.

The prevailing technological, economic and organizational standards

made a significant impact on the potential of foreign trade relations. “The

cohesion of the economic space of the former USSR was affected through

centralized state planning implemented by command-administrative

management. In the process, the country’s economy worked as a ‘single

workshop’, and not all production and economic links here were rational

from the market point of view. The transition to a market economy

throughout the economic space of the former USSR required a profound

restructuring, and this called for considerable resources and time,” Ex-

Prime Minister A.M. Kazhegeldin stressed.

The policy of liberalization of foreign trade activity and of open

economy did not result in 1993 in any growth of exports. It amounted to

$1.5 billion, thus remaining at the 1992 level. Shifts in the geography of

Kazakhstan export due to the re-orientation of foreign trade links to

industrially developed nations resulted in the strengthening of raw

materials exports. The share of machines, equipment and transport vehicles

in the export dropped to 2 percent, and the share of fuel and energy

complex and that of metallurgy rose to 80 percent. Rising domestic prices

prevented partners from concluding long-term foreign trade deals,

stimulating instead commodity exchanges. The share of barter and clearing

deals in export operations made up more than 26 percent. More than 56

percent of imports were affected through exchange of commodities. Barter

operations were mostly in the nature of structurally unbalanced exchanges.

The republic suffer considerable losses due to inadequate knowledge of the

market conditions and the desire to access foreign markets at any price.

A noticeable feature of Kazakhstan economy is the low level of the

development of machine building, which is not up to present-day

requirements, and this makes an adverse impact on other branches of the

economy, as it results in the common shortage of metal-tooling products.

This aggravates the shortage of spare parts and of products used in several

adjacent branches of industry and adversely affects the standards of

servicing.

Some of Kazakhstan most important tasks in 1994 were the closure of, and

changing production lines at, non-viable enterprises and development of

promising export-oriented ones, which also satisfy domestic demand. This

called for a set of measures to identify enterprises in the state of

depression, closing down unprofitable lines of production in energy-

consuming industries and rehabilitation and reorganization of non-

profitable production lines.

The basis of the development of Kazakhstan, just as of Russia and many

other CIS countries, is export of natural resources. In 1994, the

government introduced regulations for the licensing of natural resources,

and a law was adopted on payments for utilization of natural resources. It

was at that time that efforts were initiated to attract domestic and

foreign investors to develop the fuel and energy complex. The development

began of the Tengiz, Karachiganak, and some other oil yields at oil fields

continued to be introduced. Open – cut coal mining was expanded at

Ekibastuz, Maykubek, and Shubarkul coalfields, with the aim of reducing the

mining of coal underground at low-profit and non-profitable mines of the

Karaganda coalfields.

In the metallurgical industry, the development of production of

ferrous metals and the raw-materials basis of such production continued,

including the revamping of the Karaganda metallurgical plant with the aid

of foreign investment; its re-orientation toward the iron ore pellets of

the Sokolovsko – Saribai mining association; the development of production

of stainless steel and rolled metal and the building of an electric

metallurgical plant for the production of stainless steels in Aktobe;

further development of ferrous alloys in Aktobe and Aksu and of its raw-

materials basis –the Donskoy ore –dressing plant; the re-orientation of

idle production lines of JSC Khimprom to the production of ferromanganese.

Organizational measures were taken in 1994 to develop production of

fireproof materials.

At the same time there was a fall in the production of ferrous

metallurgy due to an aggravation of the raw materials and fuel shortage and

a parlous state of equipment at enterprises of this industry. The decline

in industrial production was to a considerable extent due to non-solvency

of enterprises in view of their insufficient financial resources, non-

payment by the buyers for products delivered, and weak financial

discipline.

The decline in non-ferrous metallurgy continued, as production of

copper, titanium, and manganese fell. To check the decline in this branch

of industry, the production lines at the Chilisai ore-dressing plant

switched to a different product; the Zyryanovsky lead plant was rebuilt,

and its commissioning was brought forward; the raw – materials basis for

the titanium industry was created, as was the Syrymbet tin field, the tin

being produced at the Tselinny chemical plant. The functioning gold mines

and ore-dressing plants were revamped, and work was accelerated to develop

major gold fields at Vasilkov, Bakyrchik, and Akbakai.

In 1994, the share of machine-building industry and machine tooling in

the overall industrial production continued to fall, amounting to six

percent. Low investment activity, non- competitiveness of the Kazakhstan

machine-building industry, limited financial consumer capacity

predetermined an almost twofold reduction volumes in most types of machine

–building branches even compared to the crisis-ridden year of 1993.

The situation was worst in the chemical and petrochemical industries,

whose production capacities far exceeded the republic’s domestic needs.

Considerable share of the product was exported to other CIS countries and

the “far abroad”, but the enterprises suffered from shortage of raw

materials, even shortages of oil, which is produced in Kazakhstan itself.

JSC Polipropilen, AKPO, Khimvolokno production association used imported

raw materials only. In 1994, the decline in most types of petrochemical

products reached 55-60 percent. Oil refining dropped by 20.3percent.

The timber, woodworking, and papermaking industries suffered from

shortage of raw materials. Between the beginning of 1993 and the end of

1994, the production of timber fell by 21 percent, and this had a negative

effect on the state of production at sawmills and woodworking factories.

The production of saw-timber, chipboard, and cardboard fell by 31.9, 59.3,

and 47.5 percent respectively, but the production of paper increased

threefold.

In 1993 and 1994, decline in production also continued in the

construction materials industry. Production of cement declined to the level

of 1973, while production of pre cast concrete products dropped to the

level of 1974. There was a considerable drop in production at enterprises

producing asbestos cement pipes and coupling (by 34.2percent), linoleum (by

40.3 percent), cement (by 61.6 percent), asbestos (by 71.2 percent), bricks

(by 78.8 percent). Production of sanitary wares dropped by 25 percent.

During the last five years, GDP volumes continued to fall, declining

roughly twofold; the greatest decline (by 25.4 percent) was observed in

1994, and in 1995 it was almost nine percent.

However, during the time of the reform considerable changes took place in

the structure of GDP: The share of services grew sharply – from 32 percent

in 1992 to 47 percent in 1995; the share of commodity production declined

by 12 percent. The volume and share of services mostly grew in the trade,

.•.

•3 • ti '

Competitiveness of the Kazakhstan machine-building industry, limited

financial consumer capacity predetermined an almost twofold reduction in

production volumes in most types of machine-building branches even compared

to the crisis-ridden year of 1993.

The situation was worst in the chemical and petrochemical industries,

whose production capacities far exceeded the republic's domestic needs. A

considerable share of the product was exported to other CIS countries and

the "far abroad," but the enterprises suffered from shortages of raw

materials, even shortages of oil, which is produced in Kazakhstan itself.

JSC Polipropilen, AKPO, Khimvolokno production association in Kustanai,

Shymkentshina production association used imported raw materials only. In

1994, the decline in most types of petrochemical products reached 55-60

percent. Oil refining dropped by 20.3 percent.

The timber, woodworking, and papermaking industries suffered from

shortages of raw materials. Between the beginning of 1993 and the end of

1994, the production of timber fell by 21 percent, and this had a negative

effect on the state of production at sawmills and woodworking factories.

The production of saw-timber, chipboard, and cardboard fell by 31.9, 59.3,

and 47.5 percent respectively, but the production of paper increased

threefold.

In 1993 and 1994, decline in production also continued in the

construction materials industry. Production of cement declined to the level

of 1973, while production of pre cast concrete products dropped to the

level of 1974. There was a considerable drop in production at enterprises

producing asbestos cement pipes and couplings (by 34.2 percent), linoleum

(by 40.3 percent), cement (by 61.6 percent), asbestos (by 71.2 percent),

bricks (by 78.8 percent). Production of sanitary wares dropped by 25

percent.

During .the last five years, GDP volumes continued to fall, declining

roughly twofold; the greatest decline (by 25.4 percent) was observed in

1994, and in 1995 it was almost nine percent.

However, during the time of the reform considerable changes took place

in the structure of GDP: The share of services grew sharply - from 32

percent in 1992 to 47 percent in 1995; the share of commodity production

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