Eurasian Integration Yearbook 2012

Customs Unionand the Single Economic SpaceAs far as tariff preferences on payment of customs duties are concerned, theprinciples of their provision in Kyrgyzstan differ from those set forth in theCU. For example, the legal framework of the CU, in contrast to Kyrgyzstan,defines the list of products from developing countries – a single-user system ofthe CU preferences on the import tariffs rates set at 75% of import tariff rates ofthe CU CCT. Upon accession to the CU, Kyrgyzstan should adopt regulations,operative under a unified system of tariff preferences of the CU, includingrules concerning the goods originating from developing and least developedcountries.Entry to the CU involves Kyrgyzstan joining all agreements included on the listof international treaties that constitutes the CU legal framework. Moreover, allthe relevant decisions of the EurAsEC Interstate Council and the Customs UnionCommission shall be binding for Kyrgyzstan.Increased tariffs, strengthened customs controls and cancellation of a simplifiedclearance procedure for imports may lead to an increase in Kyrgyzstan’sdomestic market prices. Given that a one-off increase in tariffs is inevitablewhen the CU CCT is introduced, the consumer price index is projected to jumpby about 2%.It should be noted that collection of duties from Chinese imports at the rates setby the CU CCT will inevitably lead to a decrease in volume due to the partialredirection of imports to other countries in the CU, bypassing Kyrgyzstan.However, it will create additional incentives for investment in Kyrgyzstan inorder to establish production of the relevant goods in the country itself.If Kyrgyzstan does not join the CU in the immediate future, it would worsenthe country’s current economic situation due to the increased control on theexternal borders of the CU, and deprive it of potential prospects for economicdevelopment, because the low capacity of Kyrgyzstan’s domestic market canhardly be seen as appealing for domestic-market-bound investment.Joining the CU may have a positive impact on Kyrgyzstan’s production andexport of agricultural products, textiles, and building materials, as theseproducts will become more competitive than similar products from China dueto higher import tariffs set in accordance with the CU CCT, and as a result willearn a bigger market share in the CU. This will mitigate the risk and increasethe predictability of long-term investment in Kyrgyzstan, particularly in theelectricity and transport sectors, since economic relations in those sectors willbe largely regulated at the level of the SES.The negative consequences in the short term may include a loss of attractivenessof Kyrgyzstan as a base for reexport of Chinese goods into the CU and adecrease in the flow of goods through its territory, with the corresponding lossof jobs in that sector. The rise in prices of imported goods is expected due tothe application of the CU CCT rates; however, it may result in the growing74 EDB Eurasian Integration Yearbook 2012