Economic Relations between Kazakhstan and Russia

Contents

INTRODUCTION 1

1. THE RUSSIAN-KAZAKHSTAN RATIOES AT THE PRESENT STAGE 5

1.1 Mutual Trade

1.2 Cooperating in oil gas and power

1.3 Cooperating in sphere of transport and communication

2. CONDITION OF FOREIGN TRADE BOTH DEV’T OF THE JOINT / ENTERPRISES

KAZAKHSAN AND RUSSIA

2.1 Some aspects of economic interaction Kazakhstan and Russia

2.2 The factors of economic interaction of Kazakhstan and Russia

2.3 Engaging the foreign investments

2.4 Cooperating in the field of electric power industry

2.5 Cooperating in the field of machine construction industry

2.6 Cooperating in the field of a uranium industry

3. involvement in international organizations,

kazakhstan and russia

3.1 The Eurasian Union: Realities and Perspectives

4. VITAL PROBLEMS OF THE PRESENT-DAY STATE OF 44

KAZAKHSTANI-RUSSIAN RELATIONS

CONCLUSION 61

LIST OF USED SOURSES 65

INTRODUCTION

The origins of Kazakhstani-Russian relations lie in hoary antiquity, when

Kazakhs and Russians lived on the vast Eurasian territory and, being

neighbors, developed good-neighborly relations in all the spheres of human

activity.

In analyzing the relations between Rus and the Great Steppe, one

cannot fail to mention the work of the greatest specialist in this field,

Lev N. Gumilyov. In his preface to Gumilyov's book, Ancient Rus and the

Great Steppe, Academician Dmitry S. Likhachev wrote this: Rightly taking

into account the links between subsistence economy and the level of

prosperity of ancient societies, and thus their military power, the author

also compares historical events and climactic fluctuations of the steppe

zone of Eurasia. In this way he arrived at a series of clarifications,

which enabled him to describe in detail the historical-geographic backdrop

against which various cultural influences came in conflict with the local

forms of the original culture of Eastern Europe.

It must be noted in any analysis of the emergence of the 15 new, post-

Soviet states on the map of Eurasia that certain specific features marked

the genesis of each of them. The present study focuses on the processes of

sovereignty of Kazakhstan, and the specificity of these processes lies in

that from the very beginning the republic's political leadership did not

initiate centrifugal tendencies, regarding reasonable integration an

imperative of the times and endeavoring to ease as much as possible the

destructive consequences at every stage in the disintegration of the Soviet

Union. Kazakhstan was the last former Soviet republic to declare its

independence - not out of any strong gravitation toward the past or

peripheral political development let us recall that Kazakhstan was one of

the first to experience, in December 1986, the repressive power of

totalitarianism then already withering away but because it understood that

artificial acceleration of this process is fraught with the danger of

serious upheavals. The history of numerous bloody ethnic, social, and even

interstate conflicts in the post-Soviet space bears striking evidence of

that.

The immediate subject matter of the present study is not just the

isolated process of the sovereignty of one of the post-Soviet countries but

the emergence and development against this background of new interstate

relations of two major republics of the Soviet Union, Kazakhstan and

Russia. In our view, it is relations between precisely these two countries

that can be seen as a model for the establishment of equal and mutually

advantageous between newly independent states. This view is borne out by a

sufficiently smooth and planned, though far from problem-free, development

of bilateral Kazakhstani-Russian relations, a meaningful historical

tradition of mutual relations, and an absence of sharp turns or wavering

due to subjective or external causes.

Another unifying factor is time—the many centuries of the history of

mutual relations between the peoples of the two countries that have been

neighbors in these great open spaces since the beginning of time. This far

from simple history, full of drama and heroism, these strata of time bound

together by the unremitting toil of numerous generations, unite the two

peoples.

The Soviet period in the relations between the two states let us recall

that, according to the 1977 Constitution of the USSR, the constituent

republics of the Soviet Union were declared to be "sovereign Soviet

socialist states" united in the Union of Soviet Socialist Republics and

having the right to enter into relations with foreign states, conclude

treaties and exchange diplomatic representatives, and - theoretically

-secede from the USSR was marked by the prevalence of the so-called

converted forms. The ubiquitous and all-round dominance of All-Union

structures made meaningless all talk of real interstate relations between

Kazakhstan and Russia. Both sides were in this case the objects of a

grandiose social experiment. Although positive achievements of tills period

cannot be discarded either.

The emergence and further development of relations of equal partnership

between new independent states, the Republic of Kazakhstan and the Russian

Federation, became a sort of synthesis of the entire centuries-old history

of Kazakh-Russian relations. Only now can the relations between the two

countries be justifiably described as subject-subject ones. At this stage,

both states solved such problems as defining their status in the system of

world politics, establishing relations with leading world nations, and

entering the field of international law.

The dominant role of Kazakhstani problems has determined the

chronological framework of the investigation.

The overall time frame covers the period from December 1991 the setting

up of the Commonwealth of Independent States, which finally marked the

disintegration of the USSR to the end of 1995.

In the four years, bilateral Kazakhstani - Russian relations went

through a series of significant stages the study of which can adequately

determine the level of mutual relations between the two countries, the

scope and range of integration. We single out three stages in the

development of Kazakhstani-Russian relations:

— Defining the legal interstate relations of the two countries December

1991 - May 1920

— Searching for a model of economic and political cooperation between

the states May 1992 - March 1994

— Expanding and deepening integration between Kazakhstan and Russia in the

economic and other spheres March 1994 - 1995.

Although some elements of legal contractual relations between

Kazakhstan and Russia may be discovered before December 1991, when attempts

to preserve the Soviet Union were made, it will be more chronologically

correct, in our view, to choose the moment at which the CIS was legally

formed and the activity of the Union structures of authority was

discontinued as the starting point of the study.

We propose that the signing in May 1992 of the treaty of friendship,

cooperation, and mutual assistance between the two countries be singled out

as the concluding moment of the first stage in the relations between

Kazakhstan and Russia and at the same time as the beginning of the new

stage. That document became the foundation for qualitatively new relations

in the history of the two states, opening the first page in the official

interstate relations in the new history of Kazakhstan and Russia. It

determined the principles of bilateral relations in the political,

economic, military-strategic, cultural, and spiritual spheres, lending a

colossal impulse to the entire subsequent negotiation process.

During the search for a model of interstate economic and political

cooperation between Kazakhstan and Russia, the principles were developed

for bilateral relations, which were later recorded in the treaty of

friendship, cooperation, and mutual assistance. The first official visit of

President Nazarbayev of Kazakhstan to the Russian Federation in March 1994

marked the beginning of the third stage in the development of Kazakhstani-

Russian relations - that of expanding and deepening integration between

Kazakhstan and Russia.

This division of the time frame of bilateral Kazakhstani-Russian

relations into periods shows that one of the goals of the present work is

to demonstrate continuous development between Kazakhstan and Russia in the

post-Soviet period.

As the period of political history analyzed here is extremely close to

the present, it cannot be regarded as worked out in detail in Russian and

foreign scientific literature. However, the problems of development of the

new statehood of post-Soviet countries of Kazakhstan in this case, of the

birth and evolution of interstate relations, of their entry into the

international community, are being studied ever more actively.

The crucial period of the disintegration of the USSR and the emergence

on the map of the world of new, independent states was primarily reflected

in scientific periodicals. Special mention should be made of the collective

work The New Treaty of Union: The Search for Solutions.

Problems of mutual relations between newly independent states have also

become the subjects of attention of Russian experts and political

scientists. The period of disintegration of the USSR and of the development

of Kazakhstan as a sovereign independent state are at present actively

studied by Kazakhstan scientists. Works have been written on the problem of

the emergence of the new statehood, development of the system of separation

of powers, democratization of society, evolution of party structures and

institutions of democracy, and the construction of a new legal and judicial

system. Present State and Works on the subject of bilateral Kazakhstani-

Russian relations from the moment the two states achieved independence can

be divided into several groups. The first and the most numerous one deal

with relations between Kazakhstan and Russia within the framework of the

Commonwealth of Independent States.

In recent years the development of market relations has considerably

boosted interest for economic and trade cooperation between the two

independent states. Mention must be made of a joint work by the staff of

the Russian Institute for Strategic Studies under the title Kazakhstan:

Realities and Perspectives of Independent Development, It should be noted,

though, that this work suffers from an obviously incomplete documentary and

factual basis and a certain superficiality in the analysis of the problem.

The study is based on such sources as legal acts and interstate

Kazakhstani-Russian treaties, agreements, declarations, joint protocols,

and other documents and materials, as well as decrees, decisions, and

resolutions of the organs of state power in Kazakhstan and Russia.

Extremely important sources for the study of the last five years in

the history of Kazakhstan and of Kazakhstani-Russian relations are the

works of President Nursultan Nazarbayev of Kazakhstan: Without the Right or

the Left, The Strategy of the Formation and Development of Kazakhstan as a

Sovereign State, The Strategy of Resource Saving and the Transition to the

Market, The Market and Socioeconomic Development, and especially his new

book, On the Doorstep of the 21st Century, as well as his speeches at

various forums.' Just as important as sources for the present study are the

books by President Yeltsin of Russia: Confessions on a Given Theme, Memoirs

of a President as well as his official speeches, and also the works of

other Russian politicians and public figures, which afford a deeper grasp

of the essence of events happening in the post-Soviet space in the 1990s.

The process of market reform in the republic and the tendencies and

prospects for further reform in the socioeconomic sphere are reflected in

several books by Kazakhstan's Prime Minister A.M.Kazhegeldin: The

Socioeconomic Problems of Development of the Republic of Kazakhstan in

Times of Reform, Kazakhstan in Times of Reform, Problems of State

Regulation Under the Conditions of Socioeconomic Transformation.

The formation of the republic's diplomatic service and problems of its

civilized entry in the world community are studied in the works of

K.K.Tokayev, Kazakhstan's foreign minister.

Intense legislative processes at all levels in the given period

necessitated close attention to the legal basis of the newly independent

states. As far as Kazakhstan is concerned, that legal basis includes above

all the Constitutions of 1993 and 1995, of which the content and the

sociopolitical background may be seen as the quintessence of the given

period in the country's history.

The main distinctive feature of the source base of the study is the

fact that most documents of the given period of political history have not

yet been moved to the archives; it was therefore necessary to turn on many

occasions to various central and departmental current archives. The

identification and systematization of many sources, their publication in a

collection of materials devoted to the development of Kazakhstani-Russian

relations was in themselves an important task.

It may thus be said that extensive sources have been used in the analysis

of the above-mentioned problems; their study made it possible to paint a

comprehensive picture of the development of Kazakhstani-Russian relations

against the background of the sovereignty of Kazakhstan in 1991-1995.

1.THE RUSSIAN-KAZAKHSTAN RATIOES AT THE PRESENT STAGE

In a context of events, which have taken place in region after

September 11, the role of Russia in Central Asia a little has varied, as

well as all has varied geopolitical formulated in region last years.

In these conditions of one of important external policies of tasks of

Kazakhstan is the adjusting of tactics and strategy in ratios with Russia,

which would correspond by modern geopolitical realities and long-term

interests of our country.

Central Asia and Caspian Sea, so-called recently Caspian – Central

Asia region, go into an region of traditional interests of Russia.

In this region it always had the important national interests, which,

however, in different periods were defined by different circumstances and

factors.

The key interests of Russia in this region at the present stage can be

reduced to the following.

Central Asia has the important value in of a safety of Russia.

The importance of this region for Russia is stipulated not oil by the

factor implying from desire to save influence on Caspian Sea;

Our region is of interest for Russia territorial, where its

compatriots live. Are those, on our sight three dominating interest of

Russian Federation, dominating, Caspian – Central Asia region at the

present stage. It in this region has also other interests trade, cosmotron

of “Baikonur”, industrial communications etc. but they now in basic carry

not so priority character.

Until recently Russia ensured above-mentioned interests without the

special efforts. All countries of region in the majority were that or are

otherwise dependent on Russian Federation.But the events, which have

occurred after September of the last year, have brought in serious enough

variations to a geopolitical situation in Central Asia and have affected on

common position of forces in region.

One of the occurred key variations consists that the break in sphere

of traditional vital interests of Russia is watched which today faces to

necessity Central Asia of policy.

As a whole by 2001 in Central Asia the private tripartite balance

between interests of Russia, China, USA was folded.

The given balance can figuratively be presented as a triangle, in

which upper corner Russia, in one lower corner - USA, in the friend - China

settled down. These countries have occupied three strategic niches in

Caspian – Central Asia region: military-political, oil and gas, commodity-

raw.

The Russian presence at region last years was ensured, first of all,

with strategic military-political component. A peaking of a problem

extremism and the terrorisms in Central Asia, activation Islamic of driving

of Uzbekistan, irreconcilable part of Integrated Tadjik opposition at

immediate support Talib have established in 1999 - 2001 real threat for the

countries of region.

In these conditions only Russia was considered by the states of region

as the real factor and safety. It is enough to recollect, that these years

the contacts through link DKNB, intensive two-sided ratios in military and

military-engineering sphere were especially made active.

Thus, USA has occupied oil and gases a niche in our region, and Russia

and China by virtue of economic circumstances could not with it compete in

this direction.

In this geopolitical triangle Russia all the same occupied a little

bit dominating positions. This majoring in many respects was determined

strategic military-political component, which role in the international

ratios is traditionally high.

In a context of a common global situation Russia forced to be

reconciled with a determination of military basses of USA in region of its

traditional interests.

Taking into account all these circumstances, Russia faces to necessity

of the policy in Central Asia. The further prolongation above-mentioned of

the tendencies will have for it painful enough consequences.

Despite of some variation of a role of Russia in Central Asia, for

Kazakhstan the strategic interests in a ratio of Russia continue to be

saved.

The necessity of activation of ratios with Russia and holding of

constructive cooperating on much important for Kazakhstan to directions is

dictated as well by that in case of essential weakening of Russia in

Central Asia it will be fraught with negative consequences. The situation

in region can become unstable and badly forecast.

In the whole traditional interests of Kazakhstan in a ratio of Russia

are founded on four factors having long-time character and diminuendos by

such eternal categories, as geography and history.

First, the maintenance partner of ratios with Russia is necessary

valid intercontinental of an arrangement of Kazakhstan, for which the exit

on the world market is vital for an economic development. Russia in this

respect occupies the strategically important position; being by the state,

on which region pass vital for us strategy of transport and communication.

Secondly, Russia is one of the important subjects of the international

system, having significant political weight and rather large military-

engineering opportunities. The Russian factor in many respects determines

external policy a situation around of Kazakhstan, both on regional, and at

the international level.

Thirdly, Russia is the major economic partner Republic of Kazakhstan.

It not only imports different production and techniques to Kazakhstan, but

also is the market of selling of Kazakhstan production. About 70 % of

Kazakhstan industrial potential is involved on economy.

In - fourth, both states are combined with a historical generality,

spiritual and cultural links. In region of Russia the man is Kazakh

Diasporas including 740 thousand. In Kazakhstan Russian are second on

number ethnic group, making about 30 percents of the population of the

country.

In this context the Russian direction of exterior policy of Kazakhstan

remains to one of priority and strategic.

As a whole at the present stage in the Russian-Kazakhstan ratios the

following most priority and perspective directions of cooperating are

meant:

• Mutual trade.

• Interaction in oil and gas and power sphere.

• Cooperating in sphere of transport and communications.

• Cooperating in sphere of safety.

1.1 Mutual Trade.

The interests of both countries are answered with magnifying of mutual

trade. Russian Federation traditionally occupies the first place among the

basic trade partners of Kazakhstan both on export, and on import. Trade

turn over in 2001 from Russian Federation has made 4 639,3 million of US

dollars (Diagrama1,2).

It is necessary to mark, that last years the growth of a share of

Russian Federation in import and reduction in export is watched. The

specific gravity of Russia in total amount of the Kazakhstan export is

sequentially reduced (from 44,5 % in 1994 up to 20,2 % in 2001) and is

augmented in import (from 36,3 % per 1994 up to 45,4 % per 2001). Within

several last years of Kazakhstan has negative trade balance with Russian

Federation.

Basic trade partners, in import, 1994-2001 (%)

[pic]

|1994 |1996 |1997 |1998 |1999 |2000 |2001 |

|•Russian | 36,3 | 54,8 | 45,8 | 39,4 | 36,7 | 48,7 |45,4 |

|n | | | | | | | |

|• China | 2 | 0,8 |1,1 | 1,2 |2,2 | 3 | 2,8 |

|Poland | 0,7 | 1 |1 | 1,1 | 1,7 | 1,2 | 0,9 |

|•Uzbekist|7,8 | 2,1 |1,5 | 2,2 | 2,4 | 1,5 | 1,3 |

|an | | | | | | | |

|•Kyrgysta| 2,9 | 2,1 |1,5 | 1,2 | 0,7 | 0.6 |0,4 |

|n | | | | | | | |

|• | 0,5 |0,4 | 0,1 | 0,1 |0,1 | 0,1 | 0 |

|n | | | | | | | |

The Diagrama1

Basic trade partners, in export, 1994-2001 (%)

[pic]

|1994 |1996 |1997 |1998 |1999 |2000 |2001 |

|•Russian | 44.5 | 42 | 35,2 | 29.6 | 19,8 | 19,5 | 20,2 |

|n | | | | | | | |

|• China | 4,6 | 7,8 | 6,8 | 7 | 8,5 | 7,3 | 7,1 |

|Poland | 1,7 | 0,4 | 0,4 | 0,8 | 1,4 | 0,8 | 1.5 |

|•Uzbekist| 4 | 3,4 | 2,3 | 2,2 | 1,2 | 1,5 | 1.4 |

|an | | | | | | | |

|•Kyrgysta| 1,9 | 1,9 | 1 | 1,2 | 1,1 | 0.6 | 1 |

|n | | | | | | | |

|• | 03 | 1 | 0.8 | 0.8 | 08 | 0.6 | 0,6 |

|n | | | | | | | |

The Diagrama2

Considering structure of export and import on groups of the commodity

spectrum, it is possible to select the following characteristic features.

Export. Structure of export Republic of Kazakhstan in Russian

Federation for the last few years has varied the separate commodity groups

have occupied a leading position.

Now on four commodity groups (glow iris3) (fuel mineral, oil and

petroleum; products of inorganic chemistry; grain bread and ores) are

necessary about 80 % of the Kazakhstan export in Russia, whereas in 1994

on the pointed groups it was necessary 53,3 %. In 2001 as contrasted to

2000 the separate outbound delivering tended to lowering, so, for example,

the specific gravity of export of a grain was reduced from 12 % up to 6 %;

the export of products of inorganic chemistry was reduced from 14 % up to

13 %. Certainly, on lowering of export in Russia renders influence a

variance between the in-house prices and prices of outbound delivering.

At the same time it is necessary to mark, that the reduction of export

has taken place not on all basic groups of the commodity spectrum. The

specific gravity of export of ore has increased from 8 % up to 10 % and

export of fuel from 46 % up to 47 %.

Import of republic of Kazakhstan goes into first five of the countries

of the basic trade partners of Russia in import. The specific gravity of

import of Russia has increased in total amount of the Kazakhstan import

from 36,7 % per 1999 up to 45,4 % per 2001. There were insignificant

variations in groups of imported commodity production. So, the volumes of

import were reduced

[pic]

Diagram 3

[pic]

Diagram 4

Transport, accordingly, from 15 % in 2000 up to 11 % in 2001,

alongside with it the magnifying of import on such commodity groups is

marked: fuel mineral (from 17 % up to 21 %), chemical production (from 14 %

up to 16 %), black metals and work pieces from them (from 11 % up to 13 %)

(Diagrama4).

The analysis of export and import displays, that in structure of

import as against export there is no predominance of separate commodity

groups, it more diversification, at the same time grows a specific gravity

of articles of food, products of processing ready articles.

From 89 regions of Russian Federation 72 have trade - economic links

with Republic of Kazakhstan. Depending on volume trade turn over with

Kazakhstan these regions Russia can divide into a series of groups. The

active participants of the foreign trade activity with Kazakhstan are first

three groups of regions of Russia (table 1).

As a whole on 16 regions of Russian Federation from 72 it is necessary

80 % exterior trade turn over of Russia with Kazakhstan. The high activity

pointed 16 regions is stipulated by more developed structure of their

industrial manufacture with predominance of fuel-raw, petrochemical and

machine-building specializations.

Feature of transport -geographical interregional links of regions of

Russia with Kazakhstan is the directedness mutual goods traffic primarily

with Ural, Western and East Siberia, and also with Moscow and Moscow

region.

Basic groups of the trade partners of Kazakhstan in Russia

|I |From 200,0 up |Moscow, |0,465 |

|II |From 100,1 up |Omsk, Irkutsk,|0,22 |

| | |and | |

|III |From 50,1 up |Kurgan region,|0,115 |

|IV |From 20,1 up |Perm, Tomsk |0,095 |

|V |Up to 20 mln |Others 45 |0,105 |

The important place in the Russia -Kazakhstan links occupies frontier

cooperating, on which share it is necessary 71,5 % from common commodity

circulation. Most actively explicate trade -economic links with frontier

regions of Kazakhstan Omsk, Orenburg, Astrakhan, Chelyabinsk, Novosibirsk

region and Altay region. From regions of Russia the ready roll stock of

black metals, pipe steel, petroleum, electric motors, automobiles, forest

products, coal, footwear, fabrics and other goods is taken out. In export

of many frontier subjects of Federation significant volume is necessary on

production of a petrochemical industry (Volgograd, Omsk, Samara region,

Altay region - more than 70 %).

In the Russia -Kazakhstan frontier region more 300 share enterprises,

among which such large interstate join, as “Kazroshim”, “Koksohim”,

automobile complex on basis Ural - for and Kustanay diesel factory operate.

The essential propagation in trade with Kazakhstan was received with

barter operations (57 %). So, Orsk meat factory the combine sends in

Kazakhstan in basic production of the manufacture and receives in exchange

raw material for manufacture of this production - living cattle and meat.

The joint-stock company “Nosta” receives from Kazakhstan immovable coal and

delivers metals.

The significant experience of mutual economic cooperating with frontier

regions of Kazakhstan accumulated in the Orenburg region, and also Pavlodar

region of Kazakhstan with frontier regions of Russia. Now 18 % of the

Orenburg export and more than 40 % of import have on Kazakhstan.

By the largest foreign trade partner of Republic Bashkortostan, Altay and

Krasnoyarsk edges, Kemerovo, Irkutsk, Omsk, Orenburg, Sverdlovsk and

Chelyabinsk regions is the Pavlodar region.

As a whole before Kazakhstan in mutual trade with Russia there is a

series of perspective tasks, which decision will influence definitely a

common economic situation in the country.

One of the important tasks is the variation trade balance of Kazakhstan

from Russian Federation from negative in positive. Besides the gradual

variation of structure commodity circulation in favorable for Republic of

Kazakhstan a direction is desirable.

Radiating from interests of two states, it is expedient in the nearest

perspective to consider a complex of measures on hardening links of

frontier regions. The necessity of creation of legal fundamentals of a

development of frontier regions does not call doubts. On our sight, it is

necessary to speed up development of the defining laws. Among them Laws

About state support of a socio economic development of frontier territories

Republic of Kazakhstan, About free economic regions, About frontier trade.

It is necessary also to speed up ratification four sided of the Agreement

on basic principles of frontier cooperating of the states - the

participants of the Contract about a deepening of integration in economic

and humanitarian regions from March 29, 1996.

Obvious presence of potential and mutually advantageous opportunities

of Russia and Kazakhstan also is by way of use of the optimum shapes of

specialization, density of the industrial and financial capital, use of

effective financial instruments, architecture of optimum commodity,

financial and transport streams. In this connection special urgency in a

development Kazakhstan – Russia of links was got with problems of a

synchronization of legislative and normative basis of the countries. It

would be expedient to realize step-by-step transition to collection of the

VAT on destination in Kazakhstan – Russia to trade, having begun it(him)

from machines, equipment, vehicles.

Not less important the coordinated marketing strategy of Kazakhstan and

Russia in the international markets is represented, where the saving and

hardening of common positions is quite possible. The priority direction

represents perfecting the organizational shapes of activity Kazakhstan and

Russian suppliers in the world markets. Them can become cartel of the

agreement.

One of the important instruments of hardening of two-way communications

could become creation of conditions for expansion of contacts between the

enterprises, creation of the share enterprises. On official dates (2000) in

republic 220 share Russia -Kazakhstan enterprises and 88 enterprises with

the 100--percent Russian capital actively work. The majority JV in

republic, including Russia-Kazakhstan JV, has trade –intermediary

directedness. However as against other states Russia- Kazakhstan JV of an

industrial directedness envelop considerably wider spectrum of spheres of

activity - from production and processing of natural operational life up to

production of a high scale of processing that in a defined measure confirms

an overall performance Russia- Kazakhstan JV. At the same time Russia

–Kazakhstan JV for the present do not play that role, which they could play

in a development of trade -economic cooperating. Therefore in this

direction the active support is expedient on the part of state structures.

1.2 Cooperating in oil gas and power sphere.

The given direction of cooperating between two countries by us is one

of perspective. The structure of the Kazakhstan export of oil on the

countries in 2001 is characterized by lowering of a share of delivering in

the countries of CIS (17 %) and expansion of geography of export of oil in

the countries of foreign countries (83 %) (Diagrama5).

The indexes of export of petroleum in 2001 essentially have varied as

contrasted to 2000. Alongside with export of Kazakhstan realizes import of

petroleum. And 98 % of all imported volumes of petroleum are necessary on

Russian Federation.

The lowering of the excise rates on imported petrol with 80 up to 31

EURO per ton in 2001 and falling recently of world prices per oil promoted

magnifying of delivering of the Russian oil for in-house processing. The

export of petroleum to the countries of CIS became more attractive for

Russia, than the delivering of oil on the world market, as, for example, in

Kazakhstan of the price on the same aspects of petroleum is much higher

Russian.

Kazakhstan more than on 50 % depends on Russia in a ratio of delivering

of crude oil on refinery factory in Shimkentand Pavlodar receive west

Siberian oil on the algorithm manifold from Omsk. Pavlodar refinery factory

on 100 % depends from west Siberian of oil. Shimkent usually works on 75 %

on west Siberian and on 25 % on raw material Kumkol of a deposit. Today

dependence from of west Siberian oil “Orgsintez” is reduced half at the

expense of use of the Aktyubinsk oil, transport by a railway transportation

from west of Kazakhstan. Because of lowering production of oil on west

Siberian deposits, fadeout of payments and mutual debts the question of

security by oil Pavlodar and Shimkent refinery factory more than once

acquired critical character, and the capacity factor of powers of these

enterprises frequently lowered below 0,5.

Its technological dependence on Russia falls into basic problems

Pavlodar refinery factory: the production cycle of the enterprise is

calculated for consumption west Siberian of oil with the low contents of

sulfur and paraffin. The perspectives flagship of the Kazakhstan oil

processing is complicated with its neighborhood with the Russian factories

- competitors:

Omsk, Ufa, Volgograd refinery factory by the enterprises being

vertically - integrated, they have stable access to crude oil, besides on

reduced prices, which the necessities of northern Kazakhstan in petroleum

could at desire completely satisfy.

Structure of export of the Kazakhstan oil, 2001

[pic]

Diagram 5

In oil and gas of branch the cooperating explicates also through link of

share development of the Kazakhstan deposits. Russia in the projects on

natural resources users in region of Republic of Kazakhstan, as it is

possible to see from the Diagrama6, occupies the fourth place and makes 6

%. The Russian investments in a mineral-raw complex (MSK) of Kazakhstan

have made in 2000 32,2 million of dollars, including in investigation

hydrocarbon of raw material (UVS) 3,5 mln of dollars, in production of hard

minerals (TPI) - 28,7 mln of dollars.

Two Russian investors “Bashnevt” and OJSC “Lukoil” submit the

investments in UVS. In oil branch of Kazakhstan the company “Lukoil” is

submitted in such large projects, Tengiz and Karachiganak Besides “Lukoil”

is ready to expand the presence at Kazakhstan, messages not only

development of ready deposits, but also prospecting operations.

The large interest in relation to Kazakhstan is expressed with the large

oil Russian company “Yokus” which has received a section for developments

in Russia and region of Kazakhstan.

Structure of the direct foreign investments in Kazakhstan,2000[pic]

Diagram 6

In sphere TPI of Kazakhstan the Russian investors are submitted by

such large companies, as the Russian Academy of Science of European

Economic Community (83,9 %), OJSC “Magnitogorsk” metallurgical combine

(10,6 %) and NPK “Investor” (3,8 %).

The Kazakhstan enterprises also show interest to the Russian projects.

So, “Kazakhoil” (“Kazmunaigas”) negotiates for share developments in Tomsk

region, on a deposit “Komsomolsk” in the Astrakhan region. At Kazakhstan

oilman there are intentions to develop deposits in the Arkhangelsk region.

Since 2000 the electric power system of Kazakhstan works in a parallel

condition from European Economic Community of Russia and grid system of the

countries of Central Asia.

The parallel operation of electric power systems considerably has

boosted quality of electrical power and reliability of electro supply of

consumers of Kazakhstan, Central Asia and Russian Federation, and also has

allowed operatively to realize surplus of electricity both transit of

electrical power and powers, it is more rational to use power powers of

electrical stations. The electric power system of Kazakhstan and Russian

Academy of Science European Economic Comminity of Russia is called secure

each other in case of crashes.

In the whole cooperating of Kazakhstan and Russia in fuel and energy

sphere has noticeable perspectives.

Rather perspective the project of transfer of a direct current

Ekibastuz - Tambov by voltage 1 500 sq is. This project opens an

opportunity of transport of the electric power of the Siberian power

stations and Ekibastuz heater in central regions of Russia and in the

countries of Europe.

With the purposes of security of a mutually acceptable uniform tax

condition of trade in the electric power, utilities equipment it is

expedient to realize transition of the countries at collection of indirect

taxes on a principle the countries of assignment. In this connection for a

heightening of efficiency of a parallel operation of electric power systems

the simplification of customs procedures is important at migration of

electrical power through the customs boundary.

The major factor of a development of the power market is the deepening

of cooperating in the field of scientific researches and developments of

advanced techniques in manufacture of power, electro technical equipment.

Now all aspects of equipment are made for power stations in Russia,

(Leningrad metal factory, Belenergomash, Uralenergomash, Siberenergomash).

With disintegration of Union economic links between the manufacturers and

consumers of a utilities equipment considerably have worsened, that is

negatively reflected in availability index of product of power complexes of

the country. On this question it is expedient except of concrete measures

at a level of Government.

1.3 Cooperating in sphere of transport and communications.

Cooperating in sphere of transport and communications one of the most

perspective regions of a development of two-sided ratios between Kazakhstan

and Russia. Both states in a context of a development of transport

cooperating have the friend for the friend a strategic value, as, apart

from a wide national transport web, occupy defining a geographical

position.

Kazakhstan and Russia are closely coupled by the transport

communications. In this connection of Kazakhstan is sensitive reacts to any

variations under the tariffs for freight traffic on region of Russia.

One of key here of questions - transportation of oil and gas through

region of Russia. In aggregate transportation of the Caspian oil and in the

whole oil is one of the major sides of the Russia -Kazakhstan cooperating.

First of all this magnifying of a channel capacity of an oil pipeline

Atyrau – Samara up to 15 millions tons of oil per one year. The intimation

into service CPC ensures export of the Kazakhstan oil on a long-term

perspective.

In a period with 1995 and till 1999 Russia gave Kazakhstan such quota,

which did not allow the Kazakhstan exporters to involve the algorithm

manifold Atyrau – Samara on an apparent watts its annual channel capacity

in 10,5 mln of tons of oil. And only in 1999 the algorithm manifold was

loaded almost on 100 %. The agreement on magnifying of a quota at transit

of oil in long-distance foreign countries at first up to 5 mln of tons

(December 23, 1998) was signed, and then (February 25, 1999) up to 7,5 mln

of tons (the quota in short-range foreign countries has remained former -

3,5 mln of tons). This decision initiated occurrence of the project of

reconstruction and modernizing of the algorithm manifold Atyrau – Samara

for magnifying of a channel capacity at first up to 12 mln of tons, then -

up to 15 mln of tons.

This project, designed transport companies of both countries - Russian

“Transoil” and Kazakhstan “Kazakhoil”, is favorable to both sides. For

“Transoil” the transportation of the Kazakhstan oil on the algorithm

manifolds that for complete use of their powers does not suffice 20 mln

tons, brings additional profit.

The first stage of reconstruction of the algorithm manifold Atyrau -

Samara- its channel capacity now is realized is lifted up to 12 mln of

tons. Due to this the arrangement with Russia about magnifying of a transit

quota in 2000 also was reached.

For Kazakhstan the magnifying of a channel capacity of the algorithm

manifold Atyrau – Samara and export of oil through Russia opens the

perspective market of selling, what Europe is. On a system of oil pipelines

"«Friendship" the Kazakhstan oil can act in Germanium, Poland, Hungary,

Slovenia, Czechia and Slovakia, where there is a stable demand for oil.

Under the forecasts of the experts, by 2010 Central and East Europe will

import about 80 mln of tons of oil to one year. Now more than half of

volumes of imported oil in this region make delivering of the countries of

CIS, primarily - from Russia (51 %). Having expanded outbound opportunities

in this direction, Kazakhstan can become one of the largest suppliers of

raw material in the European countries.

By share efforts of Kazakhstan and Russia is put into operation

Caspian Pipeline Consortium (CPC). The common extent of the algorithm

manifold makes 1 580 km, primal channel capacity 28 mln ton / year. Thus

for reaching a maximum channel capacity 67 mln of tons of oil per one year

(from them 45 mln ton - for Kazakhstan oil supplier) it is necessary only

to augment opportunities of pump stations, that is recognized schedule to

carry out in four stages. There is a construction of the algorithm manifold

up to Atyrau, which will connect Karachiganak with CPC and will allow

originally pumping up to 7 mln of tons of oil, and in future - up to 11 mln

of tons.

During nearest of forty years CPC will be a stable source of the

incomes for the shareholders, and also Russia and Kazakhstan. According to

accounts, for a period of maintenance of the algorithm manifold in federal

and regional budgets of Russia will arrive approximately 23,3 billion of US

dollars as deductions and profit, of Kazakhstan will receive approximately

8,2 billion of dollars.

The development of transport cooperating with Russian Federation is

most actual for Kazakhstan’s for today within the framework of architecture

of regional and transcontinental transit.

Regional transit. Russian Federation is one of the basic countries of

shaping and assignment of transit weights; on its share it is necessary

about 26 % of shaping and 20 % of assignment of weights from total amount

of all transit transportations.

Transcontinental transit. In the whole transit streams in directions

Southeast and East Asia Europe are evaluated approximately in 330 - 400

billion of dollars. Thus up to 20 % of these streams can pass through

region of Russia and Kazakhstan.

Taking into account in the whole size commodity circulation, iron roads of

the Eurasian continent and primarily Kazakhstan and Russia have real

potential for partial stylus orientations transcontinental good traffic

with sea on railway routes.

For Kazakhstan in this direction of activity has a primary value a

development of transportations on Northern corridor Trans Asian of a

railway turnpike on a route “China - Kazakhstan - Russia – Byelorussia

Poland - Germany. Now Kazakhstan together with Russia Europe - Asia and

back carries on active operation on shaping this terrestrial transport

corridor by the message.

As a whole in transport-communication sphere before Kazakhstan the

following tasks stand:

• Saving conditions for transit of the Kazakhstan power resources through

region of Russia, maintenance at a necessary level of quotas on transit of

oil for Kazakhstan.

• Scheduled magnifying of a channel capacity CPC.

• Decision of accumulating questions between the Ministry of means of

communication of Russian Federation and CJSC of “Kazakhstan Temir Joli” on

railroad rates and other questions.

• Creation of the share enterprises in transport branch.

• Realization share transport - communication of the projects on active use

of transit potential of Kazakhstan and Russia.

2. ABOUT A CONDITION OF FOREIGN TRADE BOTH DEV’T OF THE JOINT /

ENTERPRISES KAZAKHSAN AND RUSSIA

Indexes of foreign trade of RK with RF, 1995-2001

| |1995 |1996 |1997 |1998 |1999 |2000 |2001 |

|Commodity | 4 | 4 | 4 | 3 | 2489,2 | 4227,6 | 4 639,3|

|circulation |265,5 |809,0 |257.2 |323.2 | | | |

|In % to the | | 112,7 | 88,5 | 78,1 | 74,8 | 169,8 | 109,7 |

|Export, mln | 2 | 2484,4| 2 | 1 | 1 138,6| 1 769,1| 1 748,4|

|of US dollars|365,8 | |287,8 |611,4 | | | |

|In % to the | | 105 | 92,1 | 70,4 | 70,7 | 155,4 | 98,8 |

|Import, mln | 1 | 2 | 1 | 1 | 1 350,6| 2458,5 | 2 890,9|

|of US dollars|899.7 |324,6 |969,4 |711,8 | | | |

|In % to the | | 122,4 | 84,7 | 86,9 | 78,9 | 182 | 117,6 i|

|Balance, mln | 466,1| 159,8 | 318,4 | -100,4| -212 | -689,4 | -1 |

|of US dollars| | | | | | |142,5 |

|Specific | 45,1 | 42 | 35,2 | 29,6 | 19,8 | 19,4 | 20,2 |

|in % | | | | | | | |

|Specific | 49,9 | 54,8 | 45,8 | 39,4 | 36,7 | 48,7 | 45,4 |

|in % | | | | | | | |

Russian Federation of the valid historically folded processes of an

economic development is the basic trade partner of Kazakhstan and basic

consumer of Kazakhstan production. The specific gravity of Russian

Federation in volume of export in the countries of CIS annually makes not

less than 91-93 %.

In 1997 the reorientation on a development of the foreign trade links

with the countries of long-distance foreign countries began. In this

connection a -percent ratio in volumes of export between the countries of

Commonwealth essentially has varied. In 1997 there was cutting volumes of

foreign trade between Russia and Kazakhstan, per consequent years this

tendency continued to be magnified. On many goods occupying a powerful

share in export of Kazakhstan production in Russia, there was a significant

lowering of standard items.

In 2000 there was an essential heightening of volumes of export with

all countries - basic trade partners from among Commonwealth. The foreign

trade turnover of Kazakhstan with Russia in 2000 has approximated to a

level of 1997. The export has increased as contrasted to 1999 in 1,5 times,

the import has increased by 82 %. In 2001 as contrasted to 2000 of

delivering in Russian Federation practically have remained at a former

level (reduction by 1 %).

The share of Russia in total amount of export in 2001 has made 20,2 %

(in 2000 -19,4 %).

The greatest specific gravity in structure of export in Russian Federation

occupy:

Mineral products - 47,1 of % in 2001 (46,8 % in 2000): coal - 91 % of

export coal from Kazakhstan, oil and gaseous condensate - 12 %, ores and

concentrates iron, chrome, zinc -10,3 % (7,9 %); products of inorganic

chemistry junction, inorganic and organic precious and rarely of metals of

radioactive elements and isotopes 13 % (13,5 %): an oxide and hydracids of

aluminum - 90 % of all outbound delivering; ferrous metals - 8,2 % (6,3 %).

In import from Russian Federation predominate: mineral products,

machines and equipment.

In 2001 basic paper of import was: purchase of mineral fuel, oil and

petroleum - 21,4 % (more than 77 % from common import of fuel, from them

coke, diesel fuel, lubricant oils, electric power;the machines and

equipment - 16,3 %, metallurgical production -14,5 %, vehicles -13 %,

production chemical and industries, coupled to it,-12 %, plastic and work

piece from it -4 % were imported.

On October 1 2001 in Republic of Kazakhstan 740 share and foreign

enterprises created with participation of Russia (including 466 share and

274 foreign enterprises) with the authorized capital - 22,7 billion tenge

operated. The share of the foreign founder in the authorized capital has

made 1,3 billion tenge, or 5,94 %. From them 121 enterprises manufactured

production, 72 - realized deliverings on export, 182 - had import receipts

and 456 realized delivering on a home market. In 2000 in republic 461

enterprises, in 1999 - 325 operated.

The enterprises created together with the Russian partners, realize

the following aspects of activity: production of crude oil, mounting of the

process equipment, construction of civil engineering buildings, manufacture

of the electric power both electro distributive and monitoring equipment,

pharmaceutical products, copper, woolen and synthetic fabrics, flour,

processing and conservator of production, rendering of different aspects of

services and researches, maintenance and repair of automobiles, activity in

the field of a wireless and television.

2.1 Some aspects of economic interaction Kazakhstan and Russia

For adjustment and intensive development of mutually advantageous two-

sided ratios within the framework of CIS Republic of Kazakhstan and Russian

Federation have necessary objective premises. Russia and Kazakhstan make a

basis of huge Eurasian region, in which historically there were steady

geopolitical, economic, ethnic and cultural links of two countries and

peoples. In many vital spheres the national interests of two countries are

close or coincide, both countries hold on to course on saving of common

defensive, humanitarian and information space and the stability and

prosperity of two countries, further democratic of a society and success of

market transformations are equally interested in hardening safety.

The interaction of Kazakhstan with Russia is a priority in external

policy, external economic and military-strategic course of republic. A

complex of the reasons conditions and factors having not tactical, but

basic essence and long-time character stipulates it.

Today common balance of mutual relation between Kazakhstan and Russia

has positive character, as consider each other as the strategic partners

and it establishes the important premise for their mutual cooperating in

the field of policy, economy, science, engineering and other spheres.

Kazakhstan-Russian economic partnership belongs to the most advanced

regions of two-sided ratios between two states, as for this purpose both

countries have premises for rapprochement. It in many respects defines

character, both mutual relation, and other economic links, folding in the

European direction, of Kazakhstan.

On today there are favorable and unfavorable factors inherent in

Kazakhstan on a path to economic cooperating to Russia.

Alongside with the favorable factors of a development of two-sided economic

ratioes exist as well unfavorable or constraining moment. The overcoming of

economic barriers by means of restoring cooperation links will allow

introducing the operations in frameworks EAEU (Euro-Asian Economic Union).

2.2 The factors of economic interaction of Kazakhstan and Russia

Favorable

a) Presence in Kazakhstan of large mineral operational lives.

b) Transit potential and favorable geopolitical position of Kazakhstan at

the center of the Eurasian continent: on a crossroads of trade and

transport paths from Europe in Asia: through China on Far East ports,

Pacific Ocean of the state; through Iran and Turkey in the Mediterranean

pool.

c) Determination of Kazakhstan and Russia as basic trade partners on export

and import.

d) Retention of Kazakhstan in the majority large international

architectures UN, Architecture of Economic Cooperating, Economic union

Central Asian of the countries (together with Uzbekistan and Kyrgyzstan)

and Central-Asian Bank of Cooperating and Development (CABCD); Great five

Republic of Kazakhstan in frameworks of CIS (Russia, Kazakhstan, Belarus,

Kyrgyzstan, Tadjikistan).

e) The large region with the common boundary (more than 6.000 kms) with

Russia, that has for two countries a serious value in matter of hardening

of their national and collective safety.

f) The residing in republic of the large ethnic interlayer of the European

origin (Russian, Ukraine, Germany) is one of the factors of rapprochement

of Kazakhstan with the European civilization and culture.

Unfavorable

a) A close arrangement of Kazakhstan to the inconsistent states Central

Asian of region.

b) Support by Kazakhstan of multifactor policy in a ratio of transportation

of the Caspian oil.

c) The boundaries Central Asian of the states from a point of view of

international law properly not democratic of Republic of Kazakhstan;

Kazakhstan has appeared as a matter of fact cut off from Western Europe

d) Increase of ecological crisis, that weakens its positions in region and

world, narrows down opportunities of fast industrial growth.

e) Absence in Kazakhstan of a direct exit to World Ocean, exterior warm

seas, that hampers links with the largest centers of a modern civilization.

f) Support by the countries of trade wars (introduction of limitation on

import of the goods, policy of an ascertaining dumping in relation to the

exported goods, raw interdependence of the countries etc.).

In the beginning 1990s. It seemed, that the revived democratic states

within the framework of their new statuses would be and further dynamically

to explicate the ratios, filling their contents, adequate to a new

position. However it has not taken place and in basic for past years of two-

way communications were characterized defined inertia.

As displays the analysis, the policy of Russia in a ratio of the

states of Commonwealth for flowing out five years did not differ by a

sequence.

There was a natural process of comprehension of key national-state

interests attended by searching for new, as it seemed, more perspective

partners.

Certainly, the today's level of economic integration does not answer

necessities national economic of Republic of Kazakhstan and Russian

Federation. Available on it is necessary to evaluate the today facts of

economic interaction between two countries as insufficient and requiring in

serious adjusting. The priority of a development of the Kazakhstan-Russian

economic links is possible to support with existing numerous perspective

directions of a development, it:

. Trade-economic cooperating of Republic of Kazakhstan and Russian

Federation;

. Frontier cooperating Republic Of Kazakhstan and Russian Federation;

. Development of industrial-cooperation links in machine-building and

chemical complexes, by means of creation of share financial and

industrial groups;

. Cooperating and development fuel and energy of complexes of Russia and

Kazakhstan;

. Cooperating in sphere of transport;

. Cooperating of Kazakhstan and Russia in mastering vehicle launching of

Baikonur;

. Cooperating in mastering natural riches of the Caspian sea;

. Scientific - technological cooperating;

. Cooperating in the market of agricultural production.

The historically folded trade ratios of the countries of the Eurasian

region, including Russia and Kazakhstan from times “Silk road” - allow to

hope for success in a development of economic cooperating in modern

conditions.

At the same time it is necessary to mark the common tendencies,

natural for the new independent countries. The orientation to the market of

long-distance foreign countries makes production of raw in branches of the

countries rarely for them raw refined in branches, as last valid by

considerably lower, than world, efficiency of the manufacture can not

acquire production first on world or close to world prices. Stronger links

with the world market of branches of the states of Commonwealth inevitably

preclude with their demand for production domestic resource refinery of

branches by virtue of its non-competitiveness in the world market. It

inevitably reduces different branches to of an economic development

resource producers and resource refinery of branches in the countries of

CIS.

2.3 Engaging the foreign investments

The participation of the foreign capital promotes the decision of the

following tasks:

- Heightening of efficiency of an export potential, overcoming of its raw

directedness and development import substitute of manufactures;

- Heightening of a scientific and technical level of production with the

help new scientific of techniques, methods of management and selling of

production;

- Magnifying of tax receipts in the state budget;

- Assistance to a development backward and depressive of regions and

creation of new workstations in national economy;

- Use of modern industrial and administrative experience through tutoring

and retraining of the staff.

It is necessary to mark, that the cooperating of Kazakhstan and Russia

can explicate in different regions of economy. For power engineering and

mineral operational life’s priority directions are: the opportunity of an

effective shared use of mineral operational life’s, introduction new and

development of available processing manufactures oriented on export to long-

distance foreign countries, creation of a reliable system energy supply,

development of the transport communications, which development is

stipulated by presence of investment operational life’s.

Figure 1. Structure of the direct foreign investments in Kazakhstan in 2000

[pic]

In structure of the direct foreign investments in Kazakhstan the share

of Russian Federation makes 5 %. In spite of the fact that the Russian

economy requires not less to investment means, the enclosure of the

investments serves the factor of interest by Kazakhstan. The interests of

Russia consist, first of all, in natural operational life (oil, coal, ore

etc.), mastering and development.

2.4 Cooperating in the field of electric power industry

As other step which has strengthened a positions of power branch, it

is possible to name creation on the basis of bankrupt CJSC “Ekibastuz

Energy Center”, half of which shares the European Economic Community of

Russia on account of cancellation of duties of Kazakhstan for the electric

power was transferred to the Russian partners from the Russian Academy of

Science.

Since 2000 the integrated power Grid of Kazakhstan works in a parallel

condition from European Economic Community of Russia and grid system of the

countries of Central Asia.

The parallel operation of electric power systems has allowed

considerably to boost quality of electrical power and reliability of

electro supply of consumers of Kazakhstan, Central Asia and Russian

Federation, operatively to realize flow both transit of electrical power

and powers, it is more rational to use power powers of electrical stations.

The electric power system of Kazakhstan and Russian Academy of Science

European Economic Community of Russia is called secure each other in case

of crashes. It will ensure with the electric power not only Republic Of

Kazakhstan, but also Southern Ural.

With the purposes of a heightening of efficiency of a parallel

operation the measures on simplification of customs procedures are studied

at migration of electrical power through the customs boundary.

The operation coal extraction of the enterprises is stabilized. In

2002 the production 78 mln of tons coal is forecast, from which more than

25 mln of tons will be exported.

2.5 Cooperating in the field of machine construction industry

The lowering of manufacture in machine construction industry and

metalworking is called by aggravation of a financial condition of basic

consumers of machine-building production, significant rise in price of

import furnishing work pieces.

The cooperating of Russia and Kazakhstan in machine construction

industry is possible at the expense of a shared use of available industrial

potential for issue of competitive production. On basis Kentau excavator

factory assembly manufacture of dredges together with joint-stock company

Tver excavator a factory and joint-stock company Sarex. On Pavlodar

tractor together with joint-stock company the “Altay” motor factory.

Barnaul and Sibzavod (Omsk) it is planned to adjust manufacture of new

tractors, and the enterprises agricultural machinary of Kazakhstan together

with Rostelmash can master assembly manufacture a grain and of combines.

Besides in machine building branch the creation JV on manufacture of

diesel drives (planned on the basis of joint-stock company the “Kustanay”

diesel factory and joint-stock company “Hurrah Laz”) and Transnational of

financial and industrial group “Electropribor”.

2.6 Cooperating in the field of a uranium industry

Annually Kazakhstan extracts and sells about 3 % (1,5 thousand tons)

from it Whole World of production. Production of the National company

“Казатомпром” consumes Russia, USA, Western Europe, Southern Korea and

other countries.

The company “Казатомпром” combines investigation, production and

manufacture of uranium, and also accompanying rarely of elements. Into its

structure go into: joint-stock company “Volkovgoelogy” one of highly

professional in all CIS of the geological enterprises, joint-stock company

“Stepgeology”. Three ore management “Central”, “Steppe”, “Sixth”.

The basic manufacturer of uranium fuel in Kazakhstan - Ulbinski a

metal works. This versatile enterprise specializing on issue rarely metal

and super conducting production, and also special material, used in an

atomic industry, electron technology, instrument making, space engineering.

The raw material - enriched uranium - is made in Kazakhstan or is delivered

from Siberia, on Ulba make of it tablets and deliver them on the Russian

factories, where make ready heat distributor of assembly for atomic power

plants. Ulbinski the metal works occupies the important place in a nuclear-

fuel cycle of Russia and Kazakhstan.

In the near past the nuclear -fuel complex of Russia and Kazakhstan

made a single unit. To tear this line-up was it does not pay Russians,

Kazakhstan.

Last years the Kazakhstan raw material in basic went on export, and

the fuel tablets on Ulbinski factory were manufactured from the Russian raw

material. Besides is acute there was a problem solvency. Russia paid for

services by the consumer goods. An exit from the folded situation became

the offer of the Kazakhstan side to the partners from Russian "«fuel

element" of start-up of a new uranium line-up. As a result of the

enterprise deliver each other necessary components, in particular from

Kazakhstan in Russia - fuel tablets. The financial accounts between the

countries are made at the end of a line-up in accordance with sale of

products higher remake in the exterior market.

Within the framework of this cooperating, with the purposes of an

ascertaining of the greater confidence the National company “Kazatomprom”,

releases the gold share, which is transferred and gives it the right to

superimpose the veto on such decisions of Kazakhstan,

As, for example, refusal to work in one nuclear-fuel cycle to not

produce fuel tablets for Russian Atomic Electric Station or other

irrational variations in the strategy and tactics of behavior in the

market. In turn, Russia has given us assurances of a reliability and long

term of the orders. It concerns uranium, but also tantalum raw material,

beryllium etc. Durability of strategic interests of the sides by the plans

on interchanging the shares Ulbinski factory on the similar shares of the

enterprises of a nuclear -fuel cycle of Russia.

In October, 2000 the long-term contract for manufacture CJSC Ulbinski

factory of dusts of uranium and fuel tablets for AES with their further

annual delivering in Russian Federation up to 200 т of a dust and 300 т of

tablets, on a period till 2005 inclusively is made.

Besides the arrangement on creation of the share enterprise on production

of uranium on deposits “Zarechni and “Budenovski” in Southern Kazakhstan is

reached.

Considering problems of integration of Russia and Kazakhstan, it is

possible to conclude, that the activation of economic links between the

countries directly depends on the decision of legal, political, economic

and ecological problems precluding their more effective activity. The

opportunities by wider attract in a long-term perspective appreciably

depend on those political courses, which will be selected by both

countries. According to our reckoning, the creation of the common market of

Kazakhstan and Russia will allow to support steady solvency demand for

production of real sectors of economy of the countries on the basis of the

long-term target and selective contracts.

Thus, the necessity of effective economic interaction between the

countries stipulates necessity of the further decision of existing problems

and uses of every possible redundancy of premises of rise of manufacture.

3. involvement in international organizations, kazakhstan and russia

For anybody not a secret, that creation and the operation of regional

systems of safety in Central Asia was called by the following basic

reasons:

First, inability of the states becoming in plants of aggressive plans

of the international terrorist architectures, appearing under Islamic by

the slogans and using financial support international extremism of

architectures to give them effective defense;

Secondly, double standards of the conducting countries of West,

including USA, Great Britain, in a ratio of operations of a series of

terrorist architectures considered by them as battle groups national fight

for freedom of driving. By characteristic development of double standards

was, for example, the refusal of the American authorities to satisfy the

request Ministry of Foreign Affairs Peoples Republic Of China about output

gripped in captivities in Afghanistan of hits - citizens of Peoples

Republic of China Uygur of a nationality. A motivation: the Washington does

not consider Driving for independence East Turkestan as terrorist

architecture;

Thirdly, the anti Soviet moods, cultivated in West by decades, in a

defined measure were transformed in anti Russian, especially to first half

90 years. Therefore warnings of Russia, states of Central Asia, closely

face with operations of the international terrorist gangs in Chechnya, in

Batken, about real consequences of their activity were not heard.

It would be possible to explain creation of military-aerial basses of

USA in Afghanistan, Kyrgyzstan, Tadjikistan, Uzbekistan still by war

against a condition taliban. But there is a question, why these basses

began to be established as a matter of fact after completion of an active

military phase of rout taliban of a condition. Moreover, arranging of

basses air force of USA not only in Afghanistan, but also in Kyrgyzstan,

and also Tajikistan bordering with China, on defined reflections. In

particular, involuntarily there is an idea: whether can these basses

hypothetically and in a defined situation to be used as basis of a dual

purpose - not only against hits in Afghanistan, but also against China or

even against Russia.

After September 11 and especially after an overthrow reactionary

taliban of a condition in Afghanistan and ascertaining of the American

military presence in Central Asia basic; in essence there is a

consideration of an opportunity of cooperating of these architectures from

USA, for, without the account of policy of Russia, China and USA and

understanding of principles of a guard by these states of the national

interests, it is impossible to explain a situation in sphere of a safety in

region.

Whether such script of a development of events in next China is

necessary to Kazakhstan and other countries of region.

Uniquely - is not present. The consequences of disorder USSR, as is

known, have done without in tens thousand life and millions refugees.

The important element of regional cooperating is the effective

military-engineering cooperating between the countries by the members DKNB.

Today any country of Central Asia is not capable in the nearest perspective

to refuse from former Soviet, so, present Russian weapon and military

engineering. Hence, the key role of Russia in this direction will be saved.

The important element of regional cooperating is the effective

military-engineering cooperating between the countries - members DKNB Today

any country of Central Asia is not capable in the nearest perspective to

refuse from former Soviet, so, presents Russian weapon and military

engineering. Hence, the key role of Russia in this direction will be saved.

Though other points of view take place also:

a) In opinion of the Uzbek experts, principal reason of an exit of

Tashkent from DKNB was ostensibly refusal of the Russian side to sell to

Uzbekistan necessary arms and military engineering, when the country has

exposed to attacks of gangs of the international terrorists.

In these conditions of Uzbekistan forced to convert to active cooperating

from USA;

b) In mass - media the hearings, on the one hand, are persistently

spreader that Russia ostensibly is not interested in maintenance vehicle

launching of Baikonur, recognizing schedule to transfer all rocket start-

ups on vehicle launching or to realize start-ups from tropics, and with

another - that vehicle launching of Baikonur to Kazakhstan anything, except

for harm, does not bring.

Tragedy of September 11 and military action, which has followed behind

it, of USA in Afghanistan by a radical image, have changed a situation in

our region. In this connection experts of Kazakhstan Contract, being the

member, of collective safety, expected, that the states the members DKNB

will consult among themselves on all questions of the international safety,

including regional, but, unfortunately, such has not taken place also it

once again speaks that one of the reasons of an inefficiency DKNB is an

existing level of ratios between Russia and other sides of the Contract. On

my sight, on the one hand, Russia till now is not ready to equal in rights

partner to ratios with the new independent states, and, with another - in

the countries FSU of space the suspiciousness and uncertainty is still

saved in what policy Russia will realize further.

Therefore, on my sight, the special urgency is acquired now by

necessity of amplification of mutual confidence, openness, knowledge, first

of all, between Kazakhstan and Russia having on FSU space the special level

of ratios and the best premises for creation of allied ratios.

Thus, at folding geopolitical the structure of regional systems of

safety is necessary different level. In particular, Kazakhstan and Russia

should not wait of operations on the part of other countries of region, by

a phantom of the dollar help, and actively be shaded slide on a path not

only economic integration in frameworks EAEU (Euro-Asian Economic Union),

but also development of systems of safety in frameworks DKNB.

Similar situation in a ratio of cooperating with China within the

framework of the Shanghai architecture of cooperating in a direction of

struggle with terrorism, extremism and separatism

Appearing on January 25 this year at the extended meeting of the principals

of the executive authority Republic Of Kazakhstan, the President

N.Nazarbayev has formulated seven tasks facing to government, including in

the field of exterior policy.

January 25, 2002 in Almaty the third session Integration of committee

EAEU (Euro-Asian Economic Union) has passed, on which 28 questions were

considered, from which on 27 the decision is accepted. The totals of

operation of this session, unfortunately, have appeared unfavorable:

a) The participants still were not defined, in what direction it is

necessary to explicate cooperating;

b) Each participant wants first of all to defend the interests, instead

of interests of the partners. Therefore, in particular, customs duties

till now are not strip-chart unified to establish a condition of

preference for mutual trade;

c) The countries EAEU (Euro-Asian Economic Union) tend in WTO, supposing

already others, and very rigid, condition, not having matched the

positions.

Nevertheless of Kazakhstan appears for a development EAEU (Euro-Asian

Economic Union), and also others (organization structures with

participation of Russia, as such policy in finished the score answers

interests without dangerous of our country.

3.1 The Eurasian Union: Realities and Perspectives

For five years already Kazakhstan, Russia, and other post-Soviet

states, most of which are united in the Commonwealth of Independent States,

have developed in the situation of a new political reality as equal agents

of the world order. But the process of the formation of new independent

states and open democratic social systems has just begun.

Without going into detailed critique of the CIS, let us note that all

its activities and all the bilateral and multilateral efforts of its member

states clearly show that the time has come for a more effective, deep, and

diverse integration of the countries involved - the kind of integration

that would achieve a stabilization of the situation in the economy and

ensure its development on a qualitatively new basis. This applies above all

to the economies of Kazakhstan and Russia, which might become the engines

of future integrative processes in the post-Soviet space. There are also

quite a few issues pertaining to cooperation in the military-political,

scientific-technological, humanitarian, and other spheres, which are

awaiting their solution in the framework of a more effective integration

model. The idea of the formation of the Eurasian union of states proposed

by President Nazarbayev is precisely such a model; it organically combines

both the existing realities and the objective needs of today and tomorrow.

Taking into account the differences between our countries in the

levels of development of market economy, in the democratization of

political processes, we propose to establish an additional integrative

structure, the Eurasian Union, whose activities would be combined with

those of the CIS. In doing so, the member states will take into account the

diversity of integration scenarios and differences in the rate, form, and

direction of CIS states’ development. Thus there is an urgent need for the

formation of a new economic order in the CIS.

It can thus be said that the draft project for the formation of the EAU is

in keeping with the natural aspirations of the peoples living in the post-

Soviet space, the idea of new integration. The project has not only

acquired a great many supporters but has also proved that it is realistic,

urgent, and vital.

Turning to the genesis of that integrative idea, it must be recalled

that the Kazakhstan leader advocated the preservation of good relations and

re-integration on a new basis of the former Soviet republics from the very

first days of the new states acquiring independence. President Nazarbayev

stressed repeatedly that he never raised the idea of independence to the

status of a fetish but rather endeavored to preserve old ties and create

new ones. The idea of the Eurasian Union originates in the midst of life,

in the simple and universal human needs.

From that moment, the debate on the idea of the EAU assumed a new

tone. It accelerated the political crystallization on the choice between

further disintegration and re-integration on a new basis.

Many participants in the hearings stated that the EAU project offers a

chance for entering the 21st century in a civilized manner, and that it

reflects the objective logic of development of the post-Soviet space and

the consciously realized objective need for the development of integration

processes.

In this way the initiative of forming the Eurasian Union was gaining

momentum. The number of its adherents increased at scholarly events, in

government offices, and in the diplomatic circles. An understanding and

sincere approval of the EAU project was expressed, among others.

The proposals contained in the EAU project - to introduce unified visa

procedures, to guarantee the freedom of movement, to make the ruble the

settlement unit, to create a unified system of defense, parliament,

legislation, and an executive committee as an interstate organ - were at

first guardedly received by some public figures. However, the numbers of

adherents of integration are growing. Clearly, their approaches to the

problem differ, but their desire for integration remains strong.

On the question of the main principles of the EAU project, it must be

stressed that the EAU is a union of equal, independent states aimed at the

realization of the national interests of each member state and of the

available integration potential. The EAU is a form of integration of

sovereign states with the aim of consolidating stability and security and

socioeconomic modernization in the post-Soviet space. Economic interests

determine the foundations of the rapprochement among the independent

states. The political institutions of the EAU must adequately reflect these

interests and facilitate economic integration.

The following principles and mechanism of formation of the Eurasian

Union are proposed:

— National referendums or decisions of parliaments on the entry of

states in the EAU;

— The signing by member states of a treaty on the setting up of the EAU

on the basis of the principles of equality, noninterference in the affairs

of each other, respect for sovereignty, territorial integrity and

inviolability of state borders. The treaty must lay the legal and

organizational foundations for deeper integration, with the formation of an

economic, currency, and political union as its goal;

— No associated membership is permitted in the EAU;

— Decisions are carried in the EAU by the qualified majority of four-fifths

(4/5) of the overall number of member countries.

Independent states join the EAU, if the following preliminary

conditions are satisfied:

— Mandatory compliance with endorsed inter-state agreements;

— Mutual recognition of the existing political institutions of the EAU

member countries;

— Recognition of territorial integrity and inviolability of the

borders;

— Rejection of economic, political, and other forms of pressure in

inter-state relations;

— Cessation of hostilities among member countries.

New members enter the EAU after an expert evaluation is passed on

their readiness to enter the EAU and all EAU members vote unanimously on

it. An organ formed on parity terms by the states, which expressed their

readiness to become EAU members, proposes expert evaluations.

EAU states may take part in other integrative alliances, including the CIS,

on the basis of associated or permanent membership or in the role of an

observer.

Every member can leave the EAU, giving notice not later than six

months before the decision is made.

It is suggested to form the following supranational bodies:

— The Council of EAU Heads of State and Heads of Government - the

highest organ of EAU political leadership. Each member state chairs the EAU

for a period of six months in rotation according to the Cyrillic alphabet.

— The highest consultative and advisory body is the EAU Parliament. The

Parliament is formed by delegating deputies of the member states'

parliaments on the basis of equal representation of each member country or

through direct elections. Decisions of the EAU Parliament come into force

after their ratification by the parliaments of the EAU states. Ratification

must be effected within the period of one month.

— The main area of the activity of the EAU Parliament is coordination

of the member countries' legislation to insure the development of a unified

economic space, protection of the social rights and interests of

individuals and of mutual respect for state sovereignty and civil rights

within EAU states.

— The EAU Parliament creates a common legal basis to regulate the relations

between the member countries' economic agents.

— The Council of EAU Foreign Ministers, to coordinate the member countries'

foreign-policy activities.

— The Inter-state Executive Committee of the EAU - an executive and

supervisory body functioning on a permanent basis. The EAU heads of state

appoints the head of the Executive Committee -a representative of the

member countries — for a period defined by the heads. The Executive

Committee's bodies are formed to include representatives of all the

countries.

The EAU as represented by its Executive Committee must receive observer

status in a number of major international organizations, such as:

— The EAU Executive Committee's Information Bureau. The member countries

must assume a special obligation or law not to permit unfriendly statements

about the treaty's member states, which may damage relations between them.

— The Council for Education, Culture, and Science. The formation of

coordinated policy on education, promotion of cultural and scientific

cooperation and exchange, and joint activity on compiling textbooks and

manuals.

— To achieve a deeper coordination and effectiveness of the activities of

the EAU countries, it is deemed advisable to set up in each of them a State

Committee (or Ministry) for EAU Affairs.

— Regular meetings and consultations on health services, education, labor,

employment, culture, combating crime, and so on, by ministers of EAU

countries.

. Encouraging the activities of non-governmental organizations in

various areas of cooperation in accordance with EAU member

countries' national legislation.

— The Russian language is the official EAU language, functioning side

by side with the languages of legislation in the member nations.

— Citizenship. Free movement of citizens within EAU borders requires

coordination of external visa policy with regard to third nations. On

changing the country of residence within the EAU, an individual

automatically receives the other country's membership.

— One of the cities at the juncture of Europe and Asia, such as Kazan or

Samara, might be proposed as the capital of the EAU.

In order to create a unified economic space within the EAU framework, it is

proposed to establish a number of supranational coordinating structures:

— A commission on the economy under the Council of EAU Heads of State

to work out the main directions of economic reform within the EAU

framework; the commission takes into consideration the interests of the

national states and offers its proposals for endorsement by the Council of

the EAU Heads of State;

— A commission on the raw materials of the EAU exporter countries to

coordinate and endorse the prices and quotas for exported raw materials and

fuel and energy resources, an appropriate inter-state agreement to be

signed by the member countries; coordination of policy in the mining and

sale of gold and other precious metals is to be envisaged;

— A fund for economic and technological cooperation formed with EAU

members' contributions. The fund will finance promising science-intensive

economic, scientific, and technological programs and render assistance in

the solution of a wide range of problems, including legal, tax, financial,

and ecological issues;

— A commission on inter-state financial-industrial groups and joint

ventures; — an EAU international investment bank;

— An inter-state EAU court of arbitration on economic problems, to resolve

conflicts on a legal basis and to impose sanctions;

— A commission on the introduction of a clearance monetary unit (transfer

ruble).

It is proposed to implement a number of measures to preserve the potential

achieved in the previous decades and to enhance integration in the field of

science, culture, and education:

— The setting up of common EAU research centers to carry out fundamental

research in contemporary knowledge;

— The setting up of an EAU fund for the development of scientific research

to unite the scientific collectives from various countries;

— The setting up of a committee on links in the field of culture, science,

and education under the Council of the Heads of EAU Governments;

— Encouragement of the formation of non-governmental associations in the

sphere of culture, education, and science;

— The setting up of a grants fund under the EAU Executive Committee.

It is proposed to conclude the following accords on defense within the EAU

framework:

— A treaty on joint actions to strengthen the national Armed Forces of the

EAU member countries and to protect EAU external borders.

The EAU will establish a unified defense space to coordinate defense

activities:

. The formation of joint peace-making EAU forces to maintain

stability and eliminate conflicts within the member countries

and between them. The sending of peace-making forces to conflict

areas on EAU territory - with the agreement of EAU member states

and in accordance with international legal norms;

. The tabling of joint proposals by EAU member countries at

international organizations, including the United Nations

Security Council, on lending EAU joint contingents the status of

a peace-making force;

— The setting up of an inter-state center on problems of nuclear

disarmament attended by representatives of international organizations.

— All EAU states except Russia maintain their nuclear-free status.

In the area of ecology, the following mechanisms must be formed in the

nearest future, according to the EAU project:

— An ecological fund under the EAU Council of Heads of State, to realize

ecological programs within the EAU framework, to be financed by all member

states;

— Coordination of actions with international organizations to reduce the

extent of environmental pollution;

— Endorsement of short- and long-term programs for major problems of

restoration of the environment and liquidation of the consequences of

ecological disasters (the Aral Sea, Chernobyl, the Semipalatinsk nuclear

testing ground);

— The endorsement of an inter-state EAU agreement on storing nuclear waste.

The Eurasian Union of States is thus based on three principal provisions:

— Joint supranational coordinating organs for the management of the

economy, defense, and foreign policy;

— A unified economic space;

— A common defense complex.

The supranational institutions include the highest organ of political

leadership of the Union - the council of heads of state and heads of

government; the highest consultative organ, the parliament; the councils of

foreign and defense ministers;

And the interstate executive committee - a permanently functioning

executive and controlling body whose head is appointed by the heads of

government for a term which they themselves define.

As for the unified economic space, it may be built, e.g., on such a basis

as coordinating economic policies and mandatory programs; a common

legislative basis regulating relations between economic agents; a

supranational currency on the European ECU model; coordination of direct

links between enterprises; the setting up of joint and mixed industrial-

financial groups, transport firms, trade houses, and exchanges. The defense

and foreign trade complexes may be just as effective. The EAU as

represented by its executive committee must receive the status of an

authorized representative in all the leading interstate organizations of

the world.

The practical realization of the provisions of the EAU project in the

bilateral Kazakhstan!-Russian relations is excellent proof of the viability

of this program.

On January 20, 1995, a package of extremely important integration

documents was signed during the working meeting between presidents

Nazarbayev and Yeltsin. This package included a declaration on expanding

and deepening Kazakh-stani-Russian cooperation and an agreement on the

Customs Union, which was also signed by Belorussia. Both of these were

discussed in detail before. This last agreement opens the way to the

establishment of a unified customs space to be followed by a unified

economic space, as envisioned in the EAU project.

With the setting up of the Customs Union, the economic cooperation of

the three countries is built on the principles of free, non-discriminatory

trade; a common market of commodities, services, capital, and labor; and

close interaction in the production, investment, and financial spheres.

At present, the first stage in the formation of the Customs Union is

largely completed. The work done by the three sides is generally recognized

to be an important element of the realization of the foundations of the

Economic Union and the formation of the common market of CIS countries.

The legal acts on tariff and non-tariff regulation of foreign trade have

been unified. Kazakhstan and Russia have signed an agreement on unified

control of customs services. An agreement has also been reached on the

identity of trade procedures in both countries in relation to third

nations, and unified procedures have been introduced on the customs

statistics on foreign trade and customs registration of commodities subject

to excise. Customs controls on railroads and passenger air traffic between

the two countries are lifted step by step.

A treaty has been signed between the Republic of Kazakhstan and the

Russian Federation on joint efforts on the protection of outer borders, the

term “outer borders” taken to mean the sectors of the border between our

countries and the states that are not part of the CIS. The edict of the

president of Kazakhstan dated September 19, 1995 On the Lifting of Customs

Control on the Border between the Republic of Kazakhstan and the Russian

Federation concludes the first stage in the formation of the Customs Union

and orders the implementation of joint customs controls on the Kazakhstan

and Russian sectors of the outer borders of the Customs Union.

At the second stage of the formation of Kazakhstani-Russian-

Belorussian economic efforts to form a customs union, the most important

areas of cooperation are a closer coordination of economic reforms;

harmonization of civil and economic legislation; unification of currency,

tax, and price regulation by the state with the aim of leveling out the

economic and legal conditions for the activities of commodity producers

within a unified customs space; working out coordinated positions of the

members of the Customs Union in relations with third countries and

international organizations. At the meeting of heads of CIS countries in

November 1995, three more countries stated their desire to join the Customs

Union: Kyrgyzstan, Uzbekistan, and Tajikistan. Later, only Kyrgyzstan went

through with the necessary procedures and entered the Customs Union.

Another example of collaboration in the field of integration is the

agreement on the Baikonur space vehicle-launching site, which makes it

possible to use this great scientific and technological facility in the

interests of Russia and Kazakhstan, as well as documents on the issues of

citizenship signed by the presidents of Kazakhstan and Russian.

Let us consider in somewhat greater detail the problems of

citizenship, of which the solution on a bilateral basis was also outlined

in the draft project of the EAU.

Issues of citizenship became particularly prominent at the time of the

emergence and building of sovereign independent states after the

disintegration of the USSR, when tens of millions of former Soviet citizens

overnight ended up outside their "historical homelands." This problem is as

topical for Kazakhstan and Russia as for other CIS countries. More than

that, it often figures as one of the most important issues of bilateral

relations with Russia.

The more acute aspects of this problem were lifted as a result of the

signing in January 1995 by the presidents of Russia and Kazakhstan of a

treaty on the legal status of citizens of both countries living on the

territory of the other state and of an agreement on simplified procedures

for acquiring citizenship in moving from one country to another. Well-known

specialists from the two countries worked fruitfully on these documents.

Authoritative Kazakhstan! and Russian politicians and jurists believe that

these are innovative agreements without parallel in the world, and they are

a fairly rare example of regulating bilateral issues on a civilized basis.

The importance of these agreements both for progressive development of our

countries and for normal life of the citizens of Kazakhstan and Russia

cannot be exaggerated.

These documents envisage the introduction of maximally simplified

procedures for acquiring citizenship and for movement without visas; they

also offer possibilities for contract work and military service; assert the

rights of possession, use, and disposal of property; create conditions for

exchange of currency and transfer of sums of money by individuals and

corporate entities of Kazakhstan and Russia; and many other provisions

which reliably protect the rights and interests of the citizens of the two

countries.

Yet another sphere in which combining the efforts of all the

interested parties is needed is the legal status of the Caspian Sea.

The position of the Republic of Kazakhstan on this issue is based on

the need for an early drafting and signing of a convention on the legal

status of the Caspian Sea, of which a draft was worked out by the

Kazakhstan foreign ministry and sent out to all the interested states as

early as March 1994. Unfortunately, there has been no response to this

initiative for quite a long time now, and the agreement on regional

cooperation on the Caspian Sea issue is still at a standstill.

At the same time preserving this unique object of nature is a task that the

present generation must be worthy of.

The events of the recent years thus prove conclusively the need to

proceed to a new level of integration, which will fully conform to the

vital needs of the peoples. International experience shows that any

interstate association goes through various states in its development,

becoming enriched in the process with new forms of cooperation. The

Eurasian Union should be seen as just one of such transitional forms

capable of optimizing the solution of the problems facing the Commonwealth.

From the time of the publication of the draft EAU project, politicians

and scholars have been paying close attention to it. Four major scientific

and practical conferences were devoted to this subject, as were hundreds of

publications in Kazakhstan, Russia, and other states. Politicians,

scholars, and diplomats continue to study the EAU project with great

attention.

The current period in history is characterized by a radical breakdown of

the old way of life. Society now faces difficult issues, and each person is

subject to serious trials It is quite natural under these conditions that

the peoples of Kazakhstan, Russia, and other countries with an interest in

the unification of the Commonwealth will find it easier to overcome these

difficulties together. A balanced attitude toward the past, a persistent

realization of the present potential, and confidence in a more certain

future - only these things will be able to give the peoples of our

countries a natural feeling of spiritual harmony and a sense of full-

blooded life.

History is offering us a chance to enter the 21st century in a

civilized manner. One of the ways to achieve that, in my view, is the

realization of the integration potential for the establishment of the

Eurasian Union, which will reflect the objective logic of the development

of the post-Soviet space and the will of the peoples of the former Soviet

Union to achieve integration.

This is how President Nazarbayev, the author of the Eurasian project,

characterized the development of this idea and his current vision of its

future: "I still remain an adherent of integration of post-Soviet space. As

I formulated my vision of integration I laid no claims to total realization

of all the provisions of the project, being fully aware of all the

political connotations of that period. Two considerations were my primary

motivation. First, I wanted to generalize within a single whole the most

realistic proposals for further integration, which simultaneously appeared

in the countries of the post-Soviet space. Second, I wished to interrupt

the indecently drawn-out pause in the activities of the CIS institutions.

In the last two years there was movement in the CIS countries on some

issues that had been at a standstill, including

4. VITAL PROBLEMS OF THE PRESENT-DAY STATE OF KAZAKHSTANI-RUSSIAN RELATIONS

The Present State and Prospects for Economic Cooperation between

Kazakhstan and Russia.

The top priority area of Kazakhstan’s policy in foreign trade is the

strengthening of economic cooperation with Russia and consistent

integration of the economies of the CIS countries. This is determined by

the traditionally strong economic links, a high level of mutual

complementarily and interdependence of two economies of a once unified

state, the size of the commodity market and identify of economic problems

awaiting solution. “Analysis of the results of development of the economy

of the former USSR and of experiences of economically advanced nations,”

President Nazarbayev stressed, “shows that the transition to the market is

objectively necessary and historically inevitable.”

The main feature of the present-day situation in Kazakhstan is the

increasing impact of the mechanisms that have evolved in the years of

reform and a weakening of the effect of non-market factors. In the initial

stages, the underdeveloped state of such important instruments of the

formation of the market as privatization, de-monopolization, absence of a

competitive environment, were the main sources of inflation in the

republic, a worsening state of the finances of enterprisers, an acute

shortage of turnover capital, a fall in production due to falling demand

and real earnings of the main mass of the population, as well as growing

abuses in trade and banking structures.

The prevailing technological, economic and organizational standards

made a significant impact on the potential of foreign trade relations. “The

cohesion of the economic space of the former USSR was affected through

centralized state planning implemented by command-administrative

management. In the process, the country’s economy worked as a ‘single

workshop’, and not all production and economic links here were rational

from the market point of view. The transition to a market economy

throughout the economic space of the former USSR required a profound

restructuring, and this called for considerable resources and time,” Ex-

Prime Minister A.M. Kazhegeldin stressed.

The policy of liberalization of foreign trade activity and of open

economy did not result in 1993 in any growth of exports. It amounted to

$1.5 billion, thus remaining at the 1992 level. Shifts in the geography of

Kazakhstan export due to the re-orientation of foreign trade links to

industrially developed nations resulted in the strengthening of raw

materials exports. The share of machines, equipment and transport vehicles

in the export dropped to 2 percent, and the share of fuel and energy

complex and that of metallurgy rose to 80 percent. Rising domestic prices

prevented partners from concluding long-term foreign trade deals,

stimulating instead commodity exchanges. The share of barter and clearing

deals in export operations made up more than 26 percent. More than 56

percent of imports were affected through exchange of commodities. Barter

operations were mostly in the nature of structurally unbalanced exchanges.

The republic suffer considerable losses due to inadequate knowledge of the

market conditions and the desire to access foreign markets at any price.

A noticeable feature of Kazakhstan economy is the low level of the

development of machine building, which is not up to present-day

requirements, and this makes an adverse impact on other branches of the

economy, as it results in the common shortage of metal-tooling products.

This aggravates the shortage of spare parts and of products used in several

adjacent branches of industry and adversely affects the standards of

servicing.

Some of Kazakhstan most important tasks in 1994 were the closure of, and

changing production lines at, non-viable enterprises and development of

promising export-oriented ones, which also satisfy domestic demand. This

called for a set of measures to identify enterprises in the state of

depression, closing down unprofitable lines of production in energy-

consuming industries and rehabilitation and reorganization of non-

profitable production lines.

The basis of the development of Kazakhstan, just as of Russia and many

other CIS countries, is export of natural resources. In 1994, the

government introduced regulations for the licensing of natural resources,

and a law was adopted on payments for utilization of natural resources. It

was at that time that efforts were initiated to attract domestic and

foreign investors to develop the fuel and energy complex. The development

began of the Tengiz, Karachiganak, and some other oil yields at oil fields

continued to be introduced. Open – cut coal mining was expanded at

Ekibastuz, Maykubek, and Shubarkul coalfields, with the aim of reducing the

mining of coal underground at low-profit and non-profitable mines of the

Karaganda coalfields.

In the metallurgical industry, the development of production of

ferrous metals and the raw-materials basis of such production continued,

including the revamping of the Karaganda metallurgical plant with the aid

of foreign investment; its re-orientation toward the iron ore pellets of

the Sokolovsko – Saribai mining association; the development of production

of stainless steel and rolled metal and the building of an electric

metallurgical plant for the production of stainless steels in Aktobe;

further development of ferrous alloys in Aktobe and Aksu and of its raw-

materials basis –the Donskoy ore –dressing plant; the re-orientation of

idle production lines of JSC Khimprom to the production of ferromanganese.

Organizational measures were taken in 1994 to develop production of

fireproof materials.

At the same time there was a fall in the production of ferrous

metallurgy due to an aggravation of the raw materials and fuel shortage and

a parlous state of equipment at enterprises of this industry. The decline

in industrial production was to a considerable extent due to non-solvency

of enterprises in view of their insufficient financial resources, non-

payment by the buyers for products delivered, and weak financial

discipline.

The decline in non-ferrous metallurgy continued, as production of

copper, titanium, and manganese fell. To check the decline in this branch

of industry, the production lines at the Chilisai ore-dressing plant

switched to a different product; the Zyryanovsky lead plant was rebuilt,

and its commissioning was brought forward; the raw – materials basis for

the titanium industry was created, as was the Syrymbet tin field, the tin

being produced at the Tselinny chemical plant. The functioning gold mines

and ore-dressing plants were revamped, and work was accelerated to develop

major gold fields at Vasilkov, Bakyrchik, and Akbakai.

In 1994, the share of machine-building industry and machine tooling in

the overall industrial production continued to fall, amounting to six

percent. Low investment activity, non- competitiveness of the Kazakhstan

machine-building industry, limited financial consumer capacity

predetermined an almost twofold reduction volumes in most types of machine

–building branches even compared to the crisis-ridden year of 1993.

The situation was worst in the chemical and petrochemical industries,

whose production capacities far exceeded the republic’s domestic needs.

Considerable share of the product was exported to other CIS countries and

the “far abroad”, but the enterprises suffered from shortage of raw

materials, even shortages of oil, which is produced in Kazakhstan itself.

JSC Polipropilen, AKPO, Khimvolokno production association used imported

raw materials only. In 1994, the decline in most types of petrochemical

products reached 55-60 percent. Oil refining dropped by 20.3percent.

The timber, woodworking, and papermaking industries suffered from

shortage of raw materials. Between the beginning of 1993 and the end of

1994, the production of timber fell by 21 percent, and this had a negative

effect on the state of production at sawmills and woodworking factories.

The production of saw-timber, chipboard, and cardboard fell by 31.9, 59.3,

and 47.5 percent respectively, but the production of paper increased

threefold.

In 1993 and 1994, decline in production also continued in the

construction materials industry. Production of cement declined to the level

of 1973, while production of pre cast concrete products dropped to the

level of 1974. There was a considerable drop in production at enterprises

producing asbestos cement pipes and coupling (by 34.2percent), linoleum (by

40.3 percent), cement (by 61.6 percent), asbestos (by 71.2 percent), bricks

(by 78.8 percent). Production of sanitary wares dropped by 25 percent.

During the last five years, GDP volumes continued to fall, declining

roughly twofold; the greatest decline (by 25.4 percent) was observed in

1994, and in 1995 it was almost nine percent.

However, during the time of the reform considerable changes took place in

the structure of GDP: The share of services grew sharply – from 32 percent

in 1992 to 47 percent in 1995; the share of commodity production declined

by 12 percent. The volume and share of services mostly grew in the trade,

.•.

•3 • ti '

Competitiveness of the Kazakhstan machine-building industry, limited

financial consumer capacity predetermined an almost twofold reduction in

production volumes in most types of machine-building branches even compared

to the crisis-ridden year of 1993.

The situation was worst in the chemical and petrochemical industries,

whose production capacities far exceeded the republic's domestic needs. A

considerable share of the product was exported to other CIS countries and

the "far abroad," but the enterprises suffered from shortages of raw

materials, even shortages of oil, which is produced in Kazakhstan itself.

JSC Polipropilen, AKPO, Khimvolokno production association in Kustanai,

Shymkentshina production association used imported raw materials only. In

1994, the decline in most types of petrochemical products reached 55-60

percent. Oil refining dropped by 20.3 percent.

The timber, woodworking, and papermaking industries suffered from

shortages of raw materials. Between the beginning of 1993 and the end of

1994, the production of timber fell by 21 percent, and this had a negative

effect on the state of production at sawmills and woodworking factories.

The production of saw-timber, chipboard, and cardboard fell by 31.9, 59.3,

and 47.5 percent respectively, but the production of paper increased

threefold.

In 1993 and 1994, decline in production also continued in the

construction materials industry. Production of cement declined to the level

of 1973, while production of pre cast concrete products dropped to the

level of 1974. There was a considerable drop in production at enterprises

producing asbestos cement pipes and couplings (by 34.2 percent), linoleum

(by 40.3 percent), cement (by 61.6 percent), asbestos (by 71.2 percent),

bricks (by 78.8 percent). Production of sanitary wares dropped by 25

percent.

During .the last five years, GDP volumes continued to fall, declining

roughly twofold; the greatest decline (by 25.4 percent) was observed in

1994, and in 1995 it was almost nine percent.

However, during the time of the reform considerable changes took place

in the structure of GDP: The share of services grew sharply - from 32

percent in 1992 to 47 percent in 1995; the share of commodity production

declined by 12 percent. The volume and share of services mostly grew in the

trade] in banking and finances, insurance, and realty, while the share of

everyday services fell. In other words, the main trend in the changes of

macro-economic proportions was a move towards parameters characteristic of

countries with well-developed market economies. The share of consumption of

end products rose to 69 percent of utilized GDP as contrasted with 58

percent in 1993. Investment in 1995 amounted to some 30 percent of GDP.

Beginning in the second half of 1994, certain positive changes began to

occur: a decline in the rate of inflation, a growth in accumulation of

capital, a stabilization in the exchange rate of the national currency, a

decline in the banks' interests rates, and a relative growth in industrial

production.

The rate of inflation steadily declined from 4.9 in June 1994 to 3.2

percent in April 1995. The decline in production, which sharply Increased

in November 1993 through March 1994, practically, ceased in some branches

in 1994. As a result, industry as a whole grew by 0.3 percent in September,

by 1.1 percent in December, and by 1.2 percent in April. As distinct from

the previous years, a certain stabilization of production, which began in

June 1994, was accompanied by a certain slowing down rather than

acceleration of inflation.

The rate of price growth in the production and consumption sectors of the

economy in 1995 slowed down. The highest inflation occurred in January (an

increase of 108.9 percent compared to the previous month), and the lowest,

in August (102.1 percent). The annual index of consumer prices throughout

the republic was estimated at 160 percent (the monthly index, 104.3

percent, whereas the annual index of inflation of consumer prices in 1994

amounted to 1256 percent, which corresponds to a monthly inflation rate of

123.4 percent. (The annual index of production prices was at the level of

141.2 percent).

The positive dynamics in the consumer and wholesale prices was achieved

above all by harsh financial and credit policies and the government's

measures aimed at stage by stage liberalization of prices and tariffs for

commodities and services, which resulted hi a sharp reduction in the range

of regulated prices. At the beginning of 1996, only the prices of electric

power, heating, gas, passenger and freight railway traffic were regulated,

and at the local level, regulation involved prices" and tariffs of communal

services and the services of urban passenger transport.

In 1995, the monetary and credit policies were characterized by changes

in the monetary and credit instruments of the National Bank, its operations

at the inter bank credit, currency, and stock markets, and the development

of the market of state securities. Whereas hi 1994 and January 1995 the

principal instruments were centralized and auction credits, in 1995 the

emphasis shifted from state-apportioned credits to the development of

securities markets and auction credits.

The primary market of state treasury bonds actively began to develop.

The volume of trading on this market is steadily growing, with demand

exceeding supply. Toward the end of 1995, 4.3 billion tenge's worth of

treasury bonds had been issued. In September 1995, pawnshop credits were

introduced, with state treasury bonds as collateral.

The National Bank's average refinancing rate went from 210 percent in

January to 52.5 percent in December 1995. This reduction was made possible

by a considerable alleviation'' of the inflation situation.

The weighted average percentage rate for auction credits amounted in

1994 to 292.61 percent; during ten months of 1995, it went down to 103.29

percent, and in October 1995 it stabilized at the 52.56 percent level.

In 1995, the reduction in production output amounted to eight percent.

Production output fell at 44 percent of enterprises. Of the 220 most

important kinds of industrial products, production of 48 kinds increased

and that of 167, decreased. It should be noted at the same time that hi

1995 decline in production was overcome, and there was an increase in

production compared to the previous year in electric power production,

metallurgy, and in the chemical and petrochemical industries.

In 1995, the policy of liberalization of foreign trade activity

continued; distribution of export quotas was completely eliminated, and the

list of licensed export products was considerably reduced. Kazakhstan

traded with 124 states of near and far abroad.

In the framework of official aid for development, Kazakhstan received a

number of credits to the tune of $1.3 billion from international financial

organizations and individual donor countries.

One of the main types of foreign resources for the republic was direct

investment, in particular the setting up of joint ventures and foreign

enterprises. The rate of establishment of joint ventures in Kazakhstan is

fairly high. Thus, at the end: of 1990 there were just 15 of them, while at

the end of 1995 more than 2000. JVs operated in the republic, of which 500

operated on foreign capital only. Most of these were set up in the;

mining industries.

From the beginning of 1995, steadily increasing numbers of enterprises

were turned over for administration. Toward the end of December 1995,

external administration was introduced at some 20 major industrial

enterprises in various sectors. The necessary legislative basis was created

for the involvement of foreign capital in Kazakhstan.

Thus the implementation of economic policies in 1992-1995 in Kazakhstan

resulted in the liberalization and openness of the economy and the

expansion of private enterprise.

There were significant shifts in the market infrastructure. Trade and

the banking sector developed rapidly, and other financial institutions were

born - in other words, there was, progress in those spheres of the economy

that had previously; been underdeveloped but that were vital for the

functioning of the market economy.

The liberalization of foreign and domestic trade resulted in a slight

reduction of export in 1994 and early 1995 compared to the decline in the

volume of GDP. The export of commodities, mostly to CIS countries, amounted

to $13 billion in 1994 and $4.97 billion in 1995. The greatest share of

exports went to the Russian Federation — 47 percent, or $1.4 billion's

worth in 1994; in 1995, the exports amounted to $2.8 billion, including

$2.1 billion to Russia.

Russia's share in Kazakhstan's imports from CIS countries at the

beginning of 1995 was the largest - 70 percent; Turkmenistan's, 10 percent;

and Uzbekistan's, 9 percent. Of considerable significance is the fact that

more than 50 enterprises securing Russia's defense interests work on

Kazakhstani territory. All principal roads of Russia leading east and

southeast, Yuzhsib and Transsib railways included, pass through Kazakhstan.

Major Russian high voltage power lines, communications lines, and pipelines

are also connected with Kazakhstan.

As before, Kazakhstan's exports to Russia are raw materials, oil and

petrochemical products, as well as products of ferrous and non-ferrous

metallurgy.

Deliveries of ferrous metals (35.2 percent), copper and items made of

copper (15.1 percent) make up a considerable share of exports. Russian

enterprises are also the main consumers of Kazakhstan oil and petroleum

products, which amount to 40 percent of the exports of mineral products.

In 1994, Kazakhstan's imports of industrial and technical goods and of

consumer goods from the far and near abroad amounted to $3.4 billion; in

1995, the figure was $3.7 billion. The largest share of imports fell on

Russia - $1.3 billion and $1.8 billion respectively. Imports from Russia

covered 30 percent of the demand of households and the republic's

enterprises for raw materials, 70 percent of the demand for industrial

manufactured products (including 90 percent of the demand, for complex

household appliances), and more than 70 percent of the * demand for

products of the chemical and timber industries. Kazakhstan's imports from

Russia are dominated by electric; machines, equipment, mechanisms, and,

transport vehicles. Their share in over imports amounts to 70-percent.

There are also imports of considerable amounts of raw materials for the

foodstuffs industry and the foodstuffs themselves (10.2 percent), mineral

products and metals (10.1 percent), and other consumer goods (7.8 percent).

More than half of imported mineral products and non-ferrous metals come

from Russia.

The share of deliveries against convertible currency in the export-

import operations between Kazakhstan and Russia amounted to 6.5 percent of

the total volume of exports; the share of baiter operations was 32.6

percent; and the share of clearing and similar operations, 60.9 percent. In

this process, baiter deals did not as a rule result in a balanced and

equivalent exchange. Analyses of export-import barter deals in 1993-1995

shows that total exports were twice as large as imports of commodities. As

a result of these operations, considerable funds of Kazakhstan Commodity

producers annually stay in Russia.

On the whole, the results of economic development show that the

republic was close to achieving macroeconomic stabilization, that the

impact of market incentives increased, and that a new system of reference

points and motivations developed. The main problems of the critical period

of development were partially solved, but new ones emerged.

Harsh monetary and credit policies, liberalization of the domestic and

foreign markets promoted the formation in the republic of market mechanisms

for the regulations of the economy and for ensuring equal possibilities and

guarantees for all the agents of economic activity. In this situation the

possibility appeared of creating a common economic space covering

Kazakhstan and Russia, in which free circulation of commodities, capital,

and labor would be made possible.

The development of Kazakhstani-Russian relations between 1991 and 1995

showed that the two states adopted a great many documents covering a wide

range of economic issues.

The implementation of these agreements created favorable conditions for

establishing economic links between economic agents and for the development

of a common market that would be advantageous for the economic interests of

both Kazakhstan and Russia.

The relations between the two countries in the economic sphere

developed, against the background of improving multilateral cooperation:

within the CIS framework. The legal basis for this, process was the treaty

on the jetting-up of the CIS Economic Union signed on September 24, 1993.'

This document proclaimed as the main goal a voluntary, stage-by-stage re-

creation, on new, market principles of unified economic space, or common

market, with free circulation of commodities, services, capital, and labor.

On the basis of the treaty, a solid legal groundwork was created. On

October 21, 1994, an interstate economic committee was set up at a-session

of the council of CIS heads of state, and a memorandum on the main

directions of integration development of the Commonwealth of Independent

States was signed. These documents envisaged a stage-by-stage formation of

a customs union and the possibility of movement of different countries at

different speeds toward a unified economic space within the Economic Union.

A characteristic feature of the situation in the CIS is universal

recognition of the need for stepping up integration processes in the

economic interaction of CIS countries. It should be noted that, among CIS

countries, economic relations were most intense between Russia, Kazakhstan,

Ukraine, and Byelorussia, with 80 percent of commodity circulation within

the CIS taking place within these countries.

One of the basic documents on economic integration was an agreement on

a customs union between the Russian Federation, the Republic of Kazakhstan,

and the Republic of Belarus.1 Let us recall that on January 20, 1995 the

presidents of Kazakhstan and Russia, in their joint declaration on the

expansion and deepening of Kazakhstani-Russian cooperation, instructed

their governments to sign an agreement on the customs union. The heads of

governments of Kazakhstan, Russia, and Belarus signed this document.

The formation of the customs union was preceded by extensive

preparatory work aimed at harmonizing the legislative systems of the two

countries. A number of governmental and interdepartmental agreements,

protocols, and joint normative acts were signed, including those on free

trade, on a unified procedure for regulating foreign trade, on the re-

export of commodities, on the introduction of a unified procedure for non-

tariff regulation of trade with a coordinated nomenclature and volumes of

licensed and quoted commodities, on the establishment of a free trade zone,

on the unification and simplification of customs procedures, on

collaboration between customs services, on combating illegal drugs

trafficking, on the terms of maintenance of military facilities on the

territories of the two sides, and on joint security measures for the

protection of the external borders of the Customs Union. These agreements

covered a sufficiently wide range of issues, and they formed the basis for

further action.

The agreement on the setting up of the Customs Union was based on the

principles of unified customs territory of the member states of the Customs

Union and the existence of a uniform mechanism of economic regulation. It

is proposed to form the Customs Union in two stages. At the first stage,

tariffs and quantitative restrictions on mutual trade are lifted that are

envisaged in the agreement on a unified procedure for regulating foreign

trade activity of April 12, 1994; fully identical systems for regulating

foreign economic links, identical trade regulations, common customs tariffs

and non-tariff measures for regulating relations with third countries are

introduced. At this stage, work is envisaged on the unification of

legislation on foreign trade, customs, currency, finances, tax, and of

other laws bearing on foreign trade activities.

Agreements on the Customs Union envisage the possibility of

introduction of coordinated time restrictions on mutual trade in case of

shortages of commodities on the domestic market, acute payment deficit, and

other circumstances.

The countries assumed the obligation to establish unified control over

their customs organs and organize joint supervision of the movement of

commodities and transport vehicles on the borders. The procedures for such

supervision are regulated by agreements between the customs organs of the

states involved.

The agreement on the Customs Union is open to all other CIS member

states that will recognize the provisions of the agreement and express a

readiness to fulfill them in their entirety.

The joint statement was in effect an agreement on coordinated moves for

further realization of economic reform and creation of a uniform mechanism

for regulating the economies based on market principles. It set the task of

unification of legislation on foreign trade, customs, currency, finances,

prices, taxes, and other economic laws ensuring free development of

production links and of enterprise, as well as equal possibilities and

guarantees for economic agents of the three states.

In that document, the heads of the governments of the three states

noted the considerable progress in the creation of possibilities for a real

formation of a customs union on the basis of agreements and protocols

signed. The sides agreed that tariff and quantitative restrictions on

mutual trade will be lifted through the setting up of fully identical

systems of regulation of external economic links, unconditional guarantees

for effective joint protection of the external borders of the member states

of the Customs Union, and establishment of identical trade procedures,

common customs tariffs, and measures for non-tariff regulation with respect

to third countries. It was stressed that the development of foreign

economic links will be promoted by the stage-by-stage formation of a

clearing union to ensure continuous clearing on the basis of mutual

convertibility of national currencies and formation of an effective payment

system.

An agreement was reached to render state support to the development of

direct links and cooperation between enterprises, to the establishment of

financial-industrial groups, formation of favorable conditions for mutual

access and protection of investment, and acquiring real estate,

Measures were outlined for the formation of a common

scientific/technological space for a more rational utilization of the

available intellectual, scientific, and technical potential.

State delegations headed by deputy heads of governments take part in

regular monthly sittings of the commission. These sessions consider the

implementation of agreements, analyze the state of affairs in the practical

formation of the customs union, and coordinate joint measures.

At the same time each side set up its own national sections of the

intergovernmental commission on the customs union. Five groups were set up

in the framework of each national commission to cover the following areas:

1. Creation of the Customs Union. Solving tasks in the realization of a

mechanism for the establishment, of a. free trade zone; working out

normative acts for the unification of currency, financial, and general

legislation; preparing proposals for the introduction of unified procedures

for foreign trade regulation and an identical customs tariff, for

coordinating a unified procedure of customs control, for working out an

agreement on unified management of customs services, and so on.

2. Harmonization of legislative systems to coordinate the legal basis

of agreements with agreements already achieved and to eliminate

discrepancies in the economic legislative systems of the states, and to

solve other issues.

3. Realization of the provisions of treaties; of friendship,

cooperation, and mutual assistance; preparation of draft agreements and

documents on freedom of movement, citizens' legal status, conversion,

mutual debts of enterprises, and on military cooperation.

4. The development of production and enterprise. Taking coordinated

measures for economic reforms, preparing agreements on scientific and

technological cooperation, investment activity, state support of

enterprises participating in joint financial-industrial groups.

5. In the area of finances and payment relations: the organization of

work on providing regular quotations for the national currencies, on the

setting up of a network of currency exchange points, on concluding an

inter bank agreement on mutual access to domestic markets of authorized

banks, on working out a common mechanism for currency regulation and

control, on unification of taxes and their size, on the methodology of

price formation, and so on.

Practically all issues have been resolved in. the framework of the

three countries on non-tariff regulation of foreign trade activity; work

on the unification of normative legal acts in this area has been

completed. The partners came to an agreement on the procedure for

registering contracts on exports of strategically important commodities.

Work is being completed on the establishment of unified operation

modes in trading with countries and on re export of commodities.

Apart from bilateral agreements, the Customs: Union also relies on a

number of multilateral agreements and conventions adopted by the CIS

Countries, including The Foundations of Customs Legislation, A Unified

Methodology for the Customs Statistics on Foreign Trade, On the Movement of

CIS Countries' Citizens Through Their Territories Without Visas, On

Guarantees for the Rights of Individuals Belonging to National Minorities,

On the Establishment of a Unified System of Air Defense of CIS Member

States, and On Legal Aid and Legal Relations in Civil, Family, and Criminal

Cases.

Thus the main principle on which the Customs Union is founded is the

existence of a unified customs territory and a uniform mechanism for

regulating the economy, based on unified legislation.

Toward the end of 1995, significant changes occurred in the trade and

economic relations of Kazakhstan and Russia. The agreement was revised on

trade and economic relations; the emphasis was made on the development of

direct links between producers, which resulted in a considerable increase

in the exchange of products. In 1995, trade between Kazakhstan and Russia

amounted to $319 billion, or 54 percent of the total volume of the

republic’s trades, an increase of 55.4 percent on the same period in the

previous year. Exports amounted to $2.1 billion, which made up 42 percent

of the total volume of Kazakhstan export; exceeding the 1994 figures by a

factor of 1.5. Imports reached the $1.8 billion mark, or 49 percent of all

imports, exceeding the 1994 imports by 66 percent.

Work on the formation of the Customs Union can thus be seen as one of

the main achievements in the field of economic integration of Kazakhstan

and Russia. A breakthrough was achieved in the establishment of a common

market. The three countries established a unified customs zone and

eliminated controls at their internal borders. Close businesslike links

were established between the customs services.

The Customs Union brings tangible results to each of its members. The

overall volume of trade between the CIS countries outside the Customs Union

continued to fall, while the lifting of custom barriers enabled Kazakhstan,

Russia, and Byelorussia to considerably increase commodity circulation.

In October 1995, the heads of the governments of Russia, Kazakhstan,

and Byelorussia issued a joint appeal to the governments of CIS member

states to join the triple union. Running somewhat ahead of the story, let

us note that in March 1996 Kyrgyzstan joined the customs union.

At the same time progress in the development of bilateral economic

relations is checked by a number of problems, notably by chronic nonpayment

of mutual debts. Kazakhstan's debt for electric power received from Russia

grew almost threefold in 1995. In turn, Russia owed a large sum to

Kazakhstan for the coal from Ekibastuz.

Serious possibilities are sometimes missed for successful cooperation

between enterprises in the fuel and energy complex, in metallurgy, and

other branches of the economy of Kazakhstan and Russia. Close production

links became established between the Orskneftegazsintez JSC and the

Aktyubinskneft JSC, which form the Orenburg JSC. Early in 1995, the

management of these associations conducted mutual consultations and decided

that a joint oil company must be set up.

In Russia, the formation of financial-industrial groups went on at an

increasing pace. The results of their work in 1995 show that integration of

industrial and banking capital had a positive impact on economic

development.

Further effective economic cooperation between Kazaklistan and Russia

calls for systematic analysis and work on a mechanism of control over the

implementation of bilateral Kazaklistani-Russian treaties and agreements.

The following tasks should in our view be singled out in the field of

economic cooperation between Kazaklistan and Russia that are of mutual

interest and call for coordinated decisions of the governments:

a) Stabilization of export of raw materials and subsequent increase in

it as a basis for the growth of currency earnings for the

modernization of production;

b) Diversification of exports;

c) Additional currency and investment resources for restructuring the

economy;

d) Support for active trading policy on CIS countries' potential

markets;

e) Moderate protectionism in relation to newly created import-replacing

production lines.

Under these conditions the two countries will have to solve new

problems in economic integration in the framework of the Customs Union and

in the system of world economic links, in searching for additional

financial resources necessary for the implementation of economic

restructuring and their balanced growth, in defending the interests of the

domestic market from unfavorable conditions in the world economy and from,

foreign competition at the stage of stabilization of their economies.

In choosing a promising export and import specialization, Kazakhstan

and Russia should give preference to commodities that are least susceptible

to market fluctuations. To achieve this, it is necessary to conduct regular

analysis and forecasting of the situation on the markets for the principal

import and export commodities, favoring long-term agreements on their

purchase/selling over one-off deals.

In the medium-term perspective, transition should be effected from

restrictive policies to encouragement, consistently facilitating the

formation of a progressive, structure of exports and creating a

corresponding system of its state support.

Analysis of export/import operations of foreign trade companies and

enterprises shows that, in the absence of combined controls over exports

and currency and of an obligatory norm of currency sales, 1 all export

earnings reach the republic. According to Kazakhstan specialists

calculations, some $0.6-0.8 billion end up on the accounts of Kazakhstan

enterprises in the countries of near and far abroad. According to Russian

experts, corresponding figures for Russia range from $5 to $17 billion. In

this connection, one of the main tasks of management of foreign trade

activities of the two states is the setting up of systems of customs

control over export and import contracts and banking control over currency

earnings, investments, and other commodities.

In future, it is advisable to step up coordination of information

systems of control over repatriation of currency earnings by the customs

bodies and the banking system, which will permit a concentration of efforts

on securing maximum currency earnings from exports.

It is advisable to restrict the decisive role of the state in foreign

economic activity to internationally recognized standards, to be

implemented in accordance with the rules and norms of the World Trade

Organization.

It is also advisable, in a situation of considerable reduction of the

share of state property, to export and import commodities in state

interests only within the framework of intergovernmental agreements, which

must not include any privileges or tax or duty exemptions. For this

purpose, the possibility is created for domestic purchases on a competitive

basis.

The state policy of selective protection in relation to promising

exporting industries and conquering foreign markets gradually becomes one

of the main priorities of economic policy as a whole; it is called, upon to

prepare the implementation of a really proactive export policy, without

which it is impossible to ensure either the payment of foreign debts, or

internal financial stabilization, or investment activity and employment.

Another important task is the achievement of favorable trading

procedures-in relations with foreign countries and their trade and economic

groups, organizations, and unions, as well as the lifting of existing

discriminatory restrictions, and prevention of new ones, with regard to the

member states of the customs union.

To solve this task, plans are made to work consistently and

purposefully toward the entry of Kazakhstan and Russia in the World Trade

Organization, to harmonize our countries' legislative systems with

international norms and principles, and to implement the agreement on

partnership and cooperation with the European Union and agreements with

other countries.

Formation of new economic relations with states of the near abroad will

require a longer that previously believed period of time and a gradual and

coordinated advance toward generally accepted international norms of

organization.

The future economic policy of Kazakhstan in relation to Russia and the

countries of the near abroad must have the following goals development and

rationalization of cooperative economic links in terms of minimizing

expenditure and increasing competitiveness;

— The utilization of transit communications serving the export/import

commodity flows from Customs Union members to third countries;

— Cooperation and coordination of CIS countries' efforts in the

restructuring of production and in optimizing the distribution of

production forces. An active economic policy in relation to countries of

the near abroad is seen as one of the levers for the rehabilitation of the

economy and creating conditions for its upward swing.

Particularly important in the economic relations of Kazakhstan and

Russia is the creation of conditions for establishing horizontal links

between agents operating on the market, the use of new forms of economic

cooperation, such as joint ventures, transnational production, commercial,

and financial structures, and of financial-industrial groups.

Thus the entire course of economic cooperation between Kazakhstan and

Russia and its present state show that there is no alternative to close,

mutually advantageous, and constructive relations between the two

countries. As the two largest countries of post-Soviet space possessing

great natural resources, production potential, and a desire for

cooperation, Kazakhstan and Russia are quite capable of solving the tasks

they face in reforming the economy and achieving the level of economically

developed countries.

Present-day economic science and practice show that economic

integration is the absolute imperative of the future.

CONCLUSION

The analysis, in terms of history and political science, of the birth

and development of new, sovereign states at the end of the 20th century,

considered here in dynamic interaction with the development of other

states, leads us to a number of significant conclusions.

The formation of interstate relations between the Republic of

Kazakhstan and the Russian Federation is an example of synthesis of mutual

relations between two equal agents of international law. Considering the

unique situation and the entire context of ongoing processes, these

relations may be seen as a considerable contribution to the world political

and juridical experience.

An in-depth analysis of the causes of the disintegration of the USSR

was not the goal of the present study; besides, as President Nazarbayev

pointed out, it is difficult and even practically impossible to understand

everything that is connected with this event, which had such stupendous

consequences. However, it is possible to outline the objective and

subjective characteristics of this historical event.

Among the objective factors, economic causes must above all be pointed out.

The rigidly conservative plan-and-command system of the country's economy,

carrying the unbearable burden of the military-industrial complex and

serious structural unbalance, could not meet the real challenges of the

present level of development of the world economy - the postindustrial

resource- and energy-saving revamping of the economy and a breakthrough in

information technology. The inevitable nationality problems that

accumulated in the ethnically diverse Soviet Union called for considerable

attention and timely response to the challenges in this area. Perestroika

suddenly made these challenges topical almost overnight, but it couldn't

provide an adequate solution of the problems within the framework of a

unified state structure. The Novo-Ogarevo project proved Utopian in view of

its goal of achieving a consensus among nearly forty of its participants.

It is no secret that Russia played an integrative role, being a kind

of backbone in the genesis and architecture of the unitary state.

Considering its actual political and economic weight as the most powerful

republic of the Union, it is easy to understand the centrifugal effect of

the separation of the Russian Communist Party from the Communist Party of

the Soviet Union and the subsequent declaration of the sovereignty and

independence of the Russian Federation.

Among other factors, the subjective element also played a role in the

disintegration of the USSR. This element could be analyzed in terms of

persons and situations, but this is not of the greatest importance for the

purposes of the present study.

The dialectical development of Kazakhstani-Russian relations in the

process of the sovereignty of Kazakhstan showed the correctness of the view

of this process as a consequence of the disintegration of the USSR and

subsequent objective course of events in the post-Soviet space. It is

important to stress, in the context of our study, the consistent efforts of

President Nazarbayev of Kazakhstan aimed at developing integrative

processes in the relations between Kazakhstan and Russia and in the

Commonwealth of Independent States.

In turn, the declaration of sovereignty was only the beginning of a

complex process of real sovereignty for the post-Soviet countries. Using

Kazakhstan as a model, we tried to analyze the serious and comprehensive

work that had to be done, and will still have to be done, to achieve a

normal, civilized entry of the Republic in the international community. The

formation of the new Kazakhstan statehood occurred against the background

of an all-round political and economic reform of society. Despite many

complicated and contradictory processes, the country's leadership

endeavored therefore to act on the basis of scientifically well-founded

programs and concepts capable of providing the Kazakhstan is with real

reference points, the nearest tactical goals, and general strategic

objectives in this far from simple transition period.

The instituting of the post of president of the republic, the elections of

the first head of the Kazakhstan state, the constitutional reform, the

formation of a full-fledged parliamentarian system in the country were the

landmarks of the development of Kazakhstan as a sovereign independent

state.

The parliamentary system developed in Kazakhstan as a significant part

of a general political reform; it went through many political conflicts and

problem situations.

The Supreme Soviet of Kazakhstan, consisting of 360 deputies elected in

1990, was far from perfect. It should be remembered, however, that it was

this parliament that adopted the most important state acts on sovereignty,

independence, and the presidency; under this parliament, political reform

began, and new market laws were discussed and adopted. The deputies of this

parliament nurtured the idea of a professional, compact, and effective

highest legislative organ of the country working on a permanent basis.

The first professional parliament of Kazakhstan, numbering 177

deputies, was elected in March 1994. Its fate was contradictory and

dramatic. Though elected for a term of four years, this Supreme Soviet was

not quite ready for routine legislative work; besides, there were

significant violations of procedure during its election, and it was

therefore dissolved on a decision of the Constitutional Court in March

1995.

The country's political parties and movements took an active part in

the elections in December 1995 of a new parliament consisting of two

chambers, the Senate and the Mazhilis. Compact and professional, the new

parliament is, in the view of many jurists and politicians, quite capable

of fruitful legislative work and is absolutely in keeping with the

democratic principle of the division of powers.

The constitutional process in the republic also developed in a dynamic

way. This process consistently, step by step opened up new areas of the

rule of law, which corresponded to the vital periods in the development of

the republic. The path traversed from the first Constitution of sovereign

Kazakhstan, adapted in January 1993, to the Fundamental Law of the country,

adopted at a referendum in August 1995, is the path of progressive dynamic

legislative movement, of which many parameters corresponded to the

standards of developed democratic states.

Decisions on a wide range of problems in interethnic relations, the

dynamics of their development from the Forum of the Peoples of Kazakhstan

and the rise of national-cultural centers to the convocation of the

Assembly of the Peoples of Kazakhstan made it possible to conduct, in this

most difficult period in the building of the Kazakhstan state, all-round

socioeconomic and political reforms largely due to the preservation of

interethnic accord, civic peace, and goodwill of the peoples of Kazakhstan.

There is no need to emphasize the importance of Russia as a magnitude

of world order and Kazakhstan's closest neighbor. It is known all too well

what complex, and at times painful, political, economic, and social

processes took place, and are still taking place, in both states. During

the hundreds of years of cohabitation on vast adjacent territories,

Russians and Kazakhs have accumulated, despite certain differences in their

culture, traditions, and religion, a wealth of experiences in good-

neighborly relations.

The historical community, interdependence, and inter-connectedness of the

two countries' economies form the basis of Kazakhstani-Russian relations.

Of great significance is the geopolitical aspect of the relationship

between Kazakhstan and Russia as the two biggest states of the region,

which largely affects the general climate of the Eurasian subcontinent.

President Nazarbayev repeatedly stressed that Russia is our main

strategic partner, and the special relationship with Russia helps in the

solution of the most important current and long-term tasks in the

development of Kazakhstan. It may be stated today that a qualitatively new

level of relations is now taking shape in the relations between Kazakhstan

and Russia, characterized above all by the beginning of a practical

realization of the high integration potential accumulated in the public

consciousness of the two countries. It is tills area in Kazakhstan's

foreign policy, one that provides the key to the formation of a new shape

of the Kazakhstan state and is closely connected with the policy of

integration, that is an absolute priority for Kazakhstan.

Under the new historical conditions, the stable and dynamic development

of Kazakhstani-Russian relations rests on a serious legal basis. That basis

is the treaty of friendship, cooperation, and mutual assistance between the

Republic of Kazakhstan and the Russian Federation dated May 25, 1992, as

well as treaties and agreements signed in the course of the first official

visit of President Nazarbayev to Russia in March 1994 and his working

meeting with President Yeltsin in January 1995. As a follow-up to these

fundamentally important agreements, a whole series of intergovernmental

documents, agreements, and memorandums were signed which regulate the

relations between concrete ministries and departments.

However, the everyday practical experiences of bilateral cooperation

show that the joint efforts of the two countries must be constantly kept

up. Closer integration, especially in the economy and in the humanitarian

sphere, is necessary in the interests of democratic reform both in

Kazakhstan and in Russia. The process of further elaboration and

coordination of new agreements does not therefore cease. Recent years have

seen continuous meetings of heads of ministries and departments, government

delegations, and groups of experts to consider bilateral issues.

A considerable share of the economic potential of Kazakhstan and Russia

is employed in supporting production in the two countries. In recent years,

integration links have dynamically developed not only on the interstate

level but also between individual regions and enterprises. Besides, our

peoples are linked by centuries-old spiritual and cultural ties, as well as

by kinship and purely human relations, which must be constantly reinforced.

That is why the policy of integration is a principled line of conduct for

Kazakhstan leadership. "On the question of priorities," President

Nazarbayev commented, we must stress the vast importance of relations with

the Russian Federation. The effective factors here are the interdependence

of the economies, historical affinity, and demography. The two countries

are simply doomed to good-neighborly relations and collaboration. This

collaboration must be based on equal rights and mutual advantage, if we

have in mind the strategic goal of consolidating our common economic,

defense, humanitarian, information, and educational space.

Various aspects of economic and financial relations, problems in state

security and military-strategic cooperation, and humanitarian problems may,

as practical experience has shown, be positively resolved only if mutual

interests are taken into account, and if there is a conscious desire for

fruitful and mutually advantageous cooperation.

On March 28, 1994 a package of 23 treaties and agreements were signed,

five of them by the heads of state. These are, above all, the treaties on

further deepening of economic cooperation and integration, on military

cooperation, an agreement on the main principles of using the Baikonur

launching site, and a memorandum on the issues of citizenship and legal

status of citizens of the two countries.

These steps are in keeping with the integration efforts of our states

in the CIS framework, too. The ground has been laid for the economic and

settlement unions, and the Interstate Economic Committee - the Economic

Union's coordinating and executive committee - has begun to operate in

Moscow.

Other agreements, which significantly increase the horizons of

multilateral and bilateral cooperation, also promote the progress of the

Commonwealth toward new integration successes. Apart from the trade and

economic ones, agreements on cooperation in the sphere of defense also

belong here.

While noting the high level and rate of development of Kazakhstani-Russian

relations, it must be said that, both in previous times and nowadays,

unresolved problems naturally remain. There is a certain stage-by-stage

approach in foreign policy due to objective differences between the two

countries in their view of priorities in the phases of declaration,

establishment, and consolidation of sovereignty and independence.

The historical experiences of good-neighborly relations between

Kazakhstan and Russia and the solid relations of strategic partnership in

the present inspire confidence that the peoples of Kazakhstan and Russia

will enter the 21st century in a dignified manner.

LIST OF USED SOURSES

1.Mansurov. T. “Relationship between Kazakhstan and Russia”, 1998, /p.p178-

250/

2. Esengalin. N. “ External Economy” 1999, /p.p 12-45/

3. Peter Bophinger. “Kazakhstan 1993-2000” 2001, /p.p171-184/

4. Luts Hoffmann. “ Kazakhstan During the Transition”1998, /p.p202-235/

5. World Bank “Annual Report” 1998, /p.p 252-259/

6. World Bank “Annual Report” 2000, /p.p153-159/

7. National Agency of Statistics “Semiannually Report”2001 /p.p 159-175/

8. Hella Engerrer “Research of relationship between Kazakhstan and Russia

during the Transition” 1999 /p.p 25-50/

9. Katerina Dittmann “Tendency of Economic Development of Kazakhstan”, 1998

/p.p 89-123/

10. Todaro “Transition in CIS countries 2001 /p.p 25-31/

11. Mishkin “Relation Between Russia and CIS Countries 2001 /p.p 23-30/

12. Krugman “International Economies” 2001/2 /p.p 31-35/

13. EBRD “Annual Economic Report ” 2001, /p.p 123-159/

14. Daniel Gross “Economic Transition in Former Soviet Union” 1995 /p.p 145-

160/