The Impact of the World Trade Organization Membership on the economic development of Kyrgyzstan in the context of Kazakhstani borrowing

International practices show that integration into the world economy is an important or even necessary process for the countries with an emerging economy. In the Resolutions of the UN General Assembly there is a confirmation about the necessity of this process. (1) Therefore, the World Trade Organization (WTO) is probably the best example of integration into the world economy.

This international organization was founded in 1995. Deregulation of international trade and managing trade and political relations of the Member-States is the target objective of the organization foundation. WTO is the successor of the General Agreement on Tariffs and Trade (GATT), signed in 1947, and implementing the functions of international organization during 50 years (2). The list of the WTO Member-States includes 157 units and 25 observant countries as of January 1, 2012. The share of the WTO Member-State includes about 95% of a global commercial exchange (3).

The problem is that Kazakhstan is not the Member of this international organization. The process of Kazakhstani enlistment to the World Trade Organization has started since January 26, 1996 with submitting an official statement on acceding of Kazakhstan to WTO Secretariat. There are a lot of debates about the future joining of Kazakhstan the WTO. Therefore, this event will influence the development of economy in Kazakhstan and it is a burning issue. Today, Kazakhstan is an observer of this organization and is at the final stage of entering it. At the moment, the government has completed bilateral negotiations on the market access for goods and services with the WTO Member-States that are interested in the access to the market of Kazakhstan. These countries are Kyrgyzstan, Georgia, Pakistan, Turkey, China, Korea, Oman, Japan, Cuba, Norway, Dominican Republic, Bulgaria, Switzerland, Egypt, Israel, Brazil, Malaysia, Canada, Australia, India, Ecuador, El-Salvador, U.S., EU, Guatemala, Argentina, Saudi Arabia and etc. It is expected that negotiations on Kazakhstani acceding to WTO will be finished by the end of 2012 (4).

In order to clarify the issue with the prospect of Kazakhstani acceding to WTO, we would like to consider the impact of WTO membership on the economy of the country that has already been a member of this international organization. Kyrgyzstan is a good example of it.

It is not accidental that the experience of the Kyrgyz Republic in the international organization is taken into consideration. The theories of these two states (Kazakhstan and Kyrgyzstan) are similar. Firstly, they are similar according to the territorial characteristic features. Secondly, the countries were the Member-States of the USSR and have a similar history. Thirdly, Kazakhstan and Kyrgyzstan have relations in the framework of the International Economic Organization of EuroAasian Economic Community (EurAsEC).

Economic and trade relations of these countries are considerably significant due to the fact that Kazakhstan and Kyrgyzstan are neighbors from the beginning of their existence. Knowingly, an economist H. Bos noted that "in most cases the modern economic theories exactly formulate assumptions about changes in time, but do not specify the spatial conditions". Outstanding and famous economists and regionalists, such as P. Krugman, M. Porter, E. Meyr, E. Raynert and other scientists, have a similar point of view and notice that “economy exists and takes its place on the map ...” (5).

The object of the scientific publication is the countries of Kyrgyz Republic and Kazakhstan.

The subject is the impact of WTO membership on the economy of Kyrgyzstan.

A primary target of the article is to analyze the advantages of Kyrgyzstan acceding to WTO and its impact on the economy. The nest positive moments should be considered as follows:

- export of Kyrgyz goods and services is the most favored in the WTO Member-States;

- internal trade and tax legislation is harmonized with the rules and regulations of WTO;

- a predictable regime for domestic producers and investors was created in the field of trade and the service sector;

- Kyrgyzstan has had the access to a mechanism for resolving trade disputes of the WTO;

- the opportunity to participate in the formulation of new rules of an international trade;

- the country has joined the WTO ahead of its regional partners (China, Russia, Kazakhstan, and Uzbekistan) that gave it the opportunity to influence the terms and conditions for acceding of new countries to the organization, including the demand of price reduction on domestic products and solve problems arising in trade with these countries;

- in 2000 the United States abolished the amendment of Jackson-Vanik in relation to Kyrgyzstan;

- geographical distribution of KR trade the CD was expanded from 98 countries in 1998 to 140 countries in 2011 (7).

The graph below shows the increase of commodity turnover of Kyrgyz Republic after entering the WTO (data are taken from the balance of payments of the Kyrgyz Republic (8)). The turnover has grown up from 1,291 billion dollars in 1998 to 6,207 billion dollars in 2010 and it is more than 4.8 times. The export has been increased by almost 4.2 times and import has grown by 5.2 times in 2001 in comparison with 1998.

Dynamics of Foreign Commerce of the Kyrgyz Republic

(Million, USD over a period of 1998-2011)

export

import

foreign trade turnover

GDP of the country is one of the main indicators of an economic growth. The table below shows the GDP growth of the Kyrgyz Republic on the basis of the database of the World Bank.

Year	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
GDP (billions, $ USA)	1,37	1,53	1,61	1,92	2,21	2,46	2,83	3,80	5,14	4,69	4,79	5,92
GDP growth %	5	5	0	7	7	0	3	9	8	3	-1	7

GDP growth of the Kyrgyz Republic over a period of 1998-2011

The graph shows a significant growth of GDP since entering the WTO. Therefore, over the period of 1998-2001 the indicator of GDP rose from 1.65 to 5.92 billion U.S. dollars that is approximately 3.6 times.If we compare two graphs “Dynamics of Foreign Commerce of the Kyrgyz Republic (Millions, USD over a period of 1998-2011)” and “GDP growth of the Kyrgyz Republic over a period of 1998-2011”, we can notice that the data are identical. It should be noted that a significant increase in turnover of Kyrgyzstan leads to the growth of GDP.

This process suggests that trade and, above all, world commerce are ranked to the factors mainly hastening the economic growth and prosperity of nations. Adam Smith argued the necessity and importance of the foreign commerce accentuating that "the exchange of goods and services is favourable for each country; and each country finds a clear advantage of it." Analysis of Adam Smith was the starting point of the classical theory that is a foundation for various types of free trade policies. (9)

The effectiveness of foreign trade can be judged on the basis of the theory of comparative advantage of David Ricardo. Therefore, if a country specializes in the production of those goods that can be produced at relatively low costs compared to the other side, the foreign commerce will be mutually beneficial for both countries. (10)

However, there is a number of issues that create difficulties in using the benefits of the KR entering the WTO as a small domestic market and a low income of population; the poor quality of domestic goods, the low level of innovation; lack of interest of foreign investors; the transit problem through the neighboring and other countries that are not the members of the WTO.

According to the observations of independent experts, Kyrgyzstan has not been able to extract tangible benefits from WTO acceding. The country has made a political move joining the WTO.

There was no significant increase of foreign investments and the export growth. The volume of imports exceeds substantially the volume of exports, so that the trade balance by 2011 is negative and amounts to "-" 1,665 billion U.S. dollars.

Most likely, the problem has begun because of the following factors. Kyrgyzstan joined the WTO in 1998. The acceding process took only 2 years that is a narrow term. In comparison with Russia and China, this process took 15-16 years. This fact is important because countries sought an agreement with favorable terms, which is not the case of Kyrgyzstan. The country has assumed a commitment of a developed country; and it made serious concessions (Kyrgyzstan acceded to almost all the sectoral initiatives, and non-binding agreements of WTO that sharply limited the ability to protect the domestic market); the opening of the home market has led to an increase in the share of imported raw materials in the production due to an inability to compete with cheaper foreign products and goods of a high quality; this is the result of deteriorated relations with traditional commercial partners that are not the members of the WTO.

We believe that the Kazakhstani government acts in a proper way; it takes its time over the entering the international organization for disadvantageous conditions. Kyrgyzstan's experience has shown that joining the neighboring states the WTO should be taken into account. The importance of this issue should be considered according to the statement of Nursultan Nazarbayev as of November 19, 2011: “It is important that Russia enters the WTO before Kazakhstan, because shipping corridors go to Europe through Russia”. If Russia does not enter the WTO, our country will be in a position of Kyrgyzstan that joined the WTO, but it is among the states that are not the State-Members of the organization" (6).

The Russian Federation has officially become a member of the WTO on August 22, 2012. It is expected that Kazakhstan will be a Member-State in 2013. (11)

References

1. http://www.un.org/ru/development/transition/

2. http://ru.wikipedia.org/wiki/Всемирная_торговая_организация

3. http://www.rgwto.com/wto.asp?id=5223

4. http://kt.kz/?lang=rus&uin=1138536660&chapter=1153558562

5. http://koet.syktsu.ru/vestnik/2008/2008-1/1/1.htm

6. http://www.zakon.kz/4459218-esli-rossija-ne-vstupit-v-vto-to.html

7. http://www.wto.kz/ru/info/news/market/id=46

8. http://www.stat.kg/stat.files/din.files/ved/4010001.2.pdf

9. Булатов А.С. Мировая экономика. - М.: «Экономистъ», 2005.

10. Николаева И.П. Мировая экономика. - М., 2003.

11. http://meta.kz/novosti/kazakhstan/748452-kazahstan-vstupit-v-vto-v-seredine-2013-goda.html