GAINING CURRENCY

Kazakhstan 2015 | DIPLOMACY | FOCUS: WTO MEMBERSHIP

Membership in the WTO is imminent, and along with enhanced trade relations, meeting the requirements of membership in the organization is bringing Kazakhstan's legal system and business practices in line with global norms.

Barring Seychelles, which is only a few signatures away from full WTO membership, Kazakhstan looks like it may be the next country to join the global trade organization. In February 2015, Erlan Idrissov, Kazakhstan's Foreign Minister stated that with a solid year of successful negotiations, partnerships, and cooperative undertakings under its belt, the country was well positioned to complete the process in the near future. Between 1993 and 2013, gross direct investment from the EU into Kazakhstan's economy amounted to approximately $87 billion. Kazakhstan wants to see that number go even higher.

Beyond the obvious access to an extensive global trading system, Kazakhstan stands to benefit through a number of less tangible benefits. Foremost of these benefits is a thorough bolstering of the country's market institutions. Although the country's market reforms have been substantial, starting with its rejection of a centralized command economy in 1991, there are lingering impediments, especially in the areas of imports and FDI. Entry into the WTO would encourage standardization of business practices that in turn would make trade even more attractive and profitable. Well-established rules of the game create an environment conducive to safe—and predictable—exchanges, and markets dislike uncertainty. This means further elimination of irregularities and the liberalization of FDI.

All this is not to belittle Kazakhstan's already impressive track record in accommodating international investment and promoting reform. According to Ernst & Young, 81% of investors in the Kazakhstani economy consider their decision to invest to be the right one. Meanwhile, 76% of investors called their investments into the country successful. While the country already goes out of its way to push the 76% statistic higher by reducing operation costs—eliminating corporate income tax, land tax, and property tax in some cases—19% of international investors could still be brought on board. This is where WTO membership comes in.

China is an example of how WTO membership can lubricate the gears of institutionalization—which means enshrining broadly accepted best practices as the norm in business. In preparation for increased interaction with foreign firms, Kazakhstan's neighbor to the east reformed its laws governing corporate behavior, bankruptcy, behavior of banks and other financial institutions. The number of legal personnel with a working knowledge of international business law and practices also increased in response. Compliance with the law was no longer just a matter of civic duty—it was economically incentivized. Firms that could demonstrate good legal standing attracted foreign capital, while those that clung to shady practices were left behind. And overall, business practices were brought into line with international standards. China's subsequent economic explosion is now the stuff of legend.

For Kazakhstan, WTO membership and the incumbent legal reforms are already reducing clientelism in the economy. This has two obvious outcomes, the first being that all parties can expect the same legal and economic conditions. In other words, firms can make strategic decisions based on their capabilities and resources. This leads to the second outcome—more firms entering the market. On the ground, this is playing out by the book, and further facilitating the country's entry into the organization. In the 1H2014, total trade with the EU exceeded $28 billion, representing 45% of the country's total trade, up 5% YoY.

Before membership is finalized, a few hurdles must still be straddled. According to the WTO, “Bilateral market access negotiations are ongoing. The latest revision of the draft Report of the Working Party was circulated in July 2013 [when] the Working Party held its 17th meeting." This means that the country's books are in order. Of more immediate concern, Mongolia is still opposing Kazakhstan's entry into the WTO. According to Deputy Prime Minister Bakytzhan Sagintayev, Mongolia's reticence is part of a push to renegotiate its own terms of membership, making Kazakhstan a pawn in its economic strategy. But Mr. Sagintayev is sanguine despite this obstruction, and confidant that a diplomatic resolution is just around the corner. Even as Kazakh diplomats are cajoling a concession out of their counterparts to the east and west, the realities of WTO membership are already apparent in the country, in the form of universal application of international business standards and the fair play all around.