Eurasian Integration Yearbook 2012

Alexander Pavlov. “Assessing the Economic Effectof Kyrgyzstan’s Accession to the Customs Union”Customs Unionand the Single Economic Spacerecent years, the real prerequisites for the rapid development of integrationwithin the Eurasian Economic Community emerged. In 2010, the CU ofBelarus, Kazakhstan and Russia was established. In 2012, the treaties formingthe SES on the territory of these three countries came into effect.Presumably, the accession of Kyrgyzstan to the CU would provide additionalbenefits to the CU and substantial economic benefits for the republic due toexpansion of interstate cooperation and the related synergy. In order to promotethis process, there is a need for a comprehensive assessment of long-termmacroeconomic effects associated with the accession of Kyrgyzstan to the CU.Currently, the economy of Kyrgyzstan is facing a number of significantdisparities, which directly affect its competitiveness and efficiency. Formedduring the Soviet period as part of the general Soviet economic system, theKyrgyz Republic was faced with loss of capacity, even for reproduction on asimple scale, following the breakdown of economic ties.Despite Kyrgyzstan’s high degree of openness to foreign investors and its entryinto the World Trade Organisation on December 20, 1998, the predicted surgein investment activity has not actually occurred. The major obstacles are thelack of natural resources and competitive industry, and the low capacity of thedomestic market. The hydropower sector of the economy may still possess acertain appeal, but its development depends on cooperation between CentralAsian countries, which is lacking.Kyrgyzstan’s main purpose of joining the WTO was to increase the volumeof the country’s foreign trade, and therefore enhance the level of economicdevelopment. However, the effects of such a step are hard to evaluate and muchless predict. For example, the most significant achievement of foreign tradepolicy liberalisation is considered to be the openness of the economy, which,on the one hand, presupposes the development of joint ventures, the abolitionof state monopoly of foreign trade, the effective use of comparative advantagesin the international division of labour, greater specialisation and cooperation inproduction, rational allocation of resources, and increased competition betweendomestic producers. On the other hand, open economy requires reasonableaccess to the domestic market for foreign capital, goods, technology, mediaand labour. If these conditions are not met, then the spontaneous opening of theeconomy can have a negative impact on economic development, by creatingan unsustainable structure of exports and imports, which pulls the economy intoan unequal exchange in foreign trade.Upon entry into the WTO, Kyrgyzstan made many concessions and commitmentsthat were even not expressly required by the organisation. In particular, thecountry committed itself to adhere to virtually all non-binding agreementsand sector initiatives of the WTO member countries (for example, agreementson tariff concessions with respect to chemical and pharmaceutical products,Eurasian Development Bank63