Customs Union of Belarus, Kazakhstan and Russia:
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Customs Union of Belarus, Kazakhstan and Russia: Trade Creation and Trade Diversion in Central Asia in 2010-2011. Roman Mogilevskii Institute of Public Policy and Administration, UCA Bishkek, 15 November 2012.

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Roman Mogilevskii Institute of Public Policy and Administration, UCA Bishkek, 15 November 2012

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Roman mogilevskii institute of public policy and administration uca bishkek 15 november 2012

Customs Union of Belarus, Kazakhstan and Russia: Trade Creation and Trade Diversion in Central Asia in 2010-2011

Roman Mogilevskii

Institute of Public Policy and Administration, UCA

Bishkek, 15November 2012


Introduction

The issue of the CU creation and operations is big in the current policy discussions in the region and in the news

Major growth of trade between Russia and Kazakhstan (turnover 28% ↑) and between CU and other CA countries (turnover 19% ↑) has been reported in 2011

Is this growth due to the CU? This is the main question addressed in the paper

Trade between (i) Kazakhstan and other CU members, (ii) Kazakhstan and other CA countries, and (iii) other CA countries and other CU countries

Reservation – it is still early days of the CU, many potential effects had no time to materialize yet

Introduction


Key facts on the customs union

Kazakh-Russian trade is concentrated on energy, metals and, in the case of Russian exports, manufactured products

Kazakh-Belorussian trade is relatively small

Formal free trade regime with other CA countries has not changed

Trade between Kazakhstan and non-CU CA countries is concentrated on energy, cereals, and agricultural products

Trade between Russia and non-CU CA countries is concentrated on energy, machinery, agricultural and light industry products

Key facts on the Customs Union


Expectations from the cu

Two major effects of regional trade agreements – trade creation and trade diversion

Few studies on the impact of the CU on its members and neighbours

CU effect on Kazakhstan depends on the success in improvement in Kazakh-Russian trade facilitation

If this improvement is achieved, substantial trade creation and positive welfare effects

If no improvement is achieved, Kazakh imports diversion from non-CU countries to other CU members and possibly CA countries accompanied by welfare losses

Expectations from the CU


Measurement of trade creation diversion

Analysis of country trade shares

- Increase in share of a CU member country in other members’ total exports/imports may signal trade diversion if accompanied by a decline in trade with non-CU countries, or trade creation if no decline is observed

Apart from the changes in trade policy, exports/imports depend on international commodity prices, domestic demand changes in trading countries etc. Country shares allow accounting for these factors

Trade is disaggregated to eight types of commodities: (i) energy, (ii) metals, (iii) cereals and flour, (iv) other agricultural products and foods, (v) chemicals and plastics, (vi) light industry products, (vii) machinery, and (viii) other products

Measurement of trade creation/diversion


Dynamics of commodity prices in 2011

Dynamics of commodity prices in 2011


Imports of articles of steel to kazakhstan

Imports of articles of steel to Kazakhstan


Trade creation diversion evidence

Trade creation/diversion – evidence

Imports of Kazakhstan


Trade creation diversion evidence 2

Trade creation/diversion – evidence (2)

Exports of Kazakhstan


Trade creation diversion evidence 3

Trade creation/diversion – evidence (3)

Trade of other CA countries with Russia & Belarus


Trade creation diversion evidence 4

Trade creation/diversion – evidence (4)

  • Trade creation in Russian exports of chemicals and plastics, agricultural products and foods to Kazakhstan and the Kazakh exports of computers to Russia

  • Large case of trade diversion in machinery imports to Kazakhstan

  • Minor case of transition from exports of semi-fabricated product (leather) to exports of higher-value-added product (leather footwear)

  • Minor case of conversion of previously informal imports/re-exports from China into formal import/export flows

  • Possible small diversion of exports of the Russian vehicles from OCAC to Kazakhstan as well as exports of OCAC apparel to Russia


Trade creation diversion evidence 5

Trade creation/diversion – evidence (5)


Cu s impact on informal trade flows

CU’s impact on informal trade flows

  • Direct and indirect (via Kyrgyzstan) informal imports of Chinese consumer goods to Kazakhstan and Russia are worth of many USD billion

  • Major changes in border crossing regime for physical persons on Kazakh-Kyrgyz border in April 2010 and in July 2011

  • Informal trade diversion in 2010-2011


Other economic changes in kazakhstan

Only rapid assessment

Possible effect on trade in services, investments, prices, government revenue, employment

Significant gain of the GoK budget in import duty revenue ≈ US$1.4 billion

No other significant changes

Other economic changes in Kazakhstan


Conclusions

Major increases in the intra-CU trade and in trade between the CU and other CA countries are due to the growth of energy and metal prices

Few small cases of creation of trade between Kazakhstan and Russia

Large case of trade diversion with Kazakhstan’s imports of machinery shift from developed countries to China and Russia – possible welfare loss

Few other minor trade changes attributable to the CU effects

Conclusions


Conclusions 2

Significant CU-attributable gain for the government budget of Kazakhstan

Cumulative effect of the CU on the economy of Kazakhstan seems to be ambiguous

CU impact on other CA countries is small with minor gains for Uzbekistan

Actual effect of the CU so far is well below expectations

General assessment of the CU effects is not going to be unambiguously positive or negative; there are winners and losers in each country; accounting for details and nuances seem to be necessary

Conclusions (2)


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