Eurasian Integration Yearbook 2012

Customs Unionand the Single Economic SpaceEven in Soviet times, Kyrgyzstan was highly dependent on imports andsubsidies from the central budget. Over twenty years of sovereignty, it hasnot succeeded a lot in improving structural imbalances, but the accession tothe WTO has given impetus to the development of an economy orientated ontrade and reexport. Today the Kyrgyz economy, with its poor diversificationand no scale effect, can hardly surpass the threshold of $5 million, even at thegeneralised, two-digit level of trade classification; hence its strong dependenceon partnering countries with a diversified structure of exports. In addition,high interest rates and economic and political risks explain the low level ofinvestments in production and agriculture. Accordingly, the most developedsectors are the services and retailing sectors as they ensure quick profit, donot require large investments, and are flexible with respect to changes in theexternal environment.The studies have shown that Kyrgyzstan’s accession to the CU should entail anumber of positive changes. These will include the recovery of trade ties, easieraccess to main markets, possible increases in investment flows to the country,and the advancement of production and agriculture. The authors agree thathydropower, textiles and agriculture will be the priority sectors, in particularbecause Kyrgyzstan’s supply to global markets in recent years was primarilycomposed of textile and agricultural products.The development of industrial production and agriculture is impeded by theeconomy’s poor ability to compete with Chinese imports. Because of the WTOmembership (and beneficial tax treatment and customs duties that depend noton the customs cost of goods but on their weight) Kyrgyzstan has spotted aniche of a reexporting economy in the CIS. In 2010, the reexport of Chinesegoods exceeded 13% of the country’s Gross Domestic Product (GDP). Largeplatforms of international trade have formed in the country, such as Dordoyand Kara-Suu where, according to the World Bank (2009), the aggregate annualsales approximate $3.5 billion and employment exceeds 70,000 people.Since 2010 (according to the administration of the Dordoy Bazaar), wholesalevolumes have gone down but retailing has seemed to grow (in small batches ofapproximately up to 50 kg per person after the creation of the CU in 2010).The administration of the Dordoy Bazaar and representatives of the associationof bazaars are obviously concerned about how Kyrgyzstan’s possible accessionto the CU will influence employment in the market. However, on the wholethey understand that the creation of the CU and the Single Economic Spacewill result in a reduction in Kyrgyzstan’s reexporting activities irrespectiveof whether it joins the CU or not. In the former instance, access to the maindirections of reexport will be complicated and in the latter one, the transition ofgoods through Kyrgyzstan will become meaningless. In addition, the continuousappreciation of the Chinese yuan against the US dollar and the currencies of theregion makes Chinese goods increasingly expensive. This makes it clear that78 EDB Eurasian Integration Yearbook 2012