Cablegate: Kazakhstan: Customs Officials Prepare for Customs Union

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UNCLAS SECTION 01 OF 02 ASTANA 001982

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EUR/UMB, EEB/ESC
STATE PASS TO USTDA, OPIC, EXIM, USTR

E.O. 12958: N/A
TAGS: PGOV PREL ECON ETRD KIPR RS BO KZ
SUBJECT: KAZAKHSTAN: CUSTOMS OFFICIALS PREPARE FOR CUSTOMS UNION

ASTANA 00001982 001.2 OF 002

1. (U) Sensitive but unclassified. Not for public Internet.

2. (SBU) SUMMARY: On November 4, Kazakhstani Deputy Chairman of
the Customs Control Committee of the Ministry of Finance Serzhan
Duisebayev told EconOff that the government will likely approve
several long-anticipated amendments to the current Kazakhstani
Customs Code by the end of November, including ex-officio powers for
customs agents to seize counterfeit goods at the border. Duisebayev
also explained the implementation timeline and administrative
structure of the Russia, Belarus, Kazakhstan (RBK) Customs Union,
which includes the abolition of all internal borders as of July 1,
2011, a Moscow-based headquarters, and enhanced border cooperation
with Russia. Kazakhstani customs officials continue to demonstrate
their commitment to progressive customs procedures, as evidenced by
the impending amendments to the current Customs Code. Whether they
can do so or not in the RBK Customs Union remains to be seen. END
SUMMARY

3. (SBU) During a November 4 meeting with EconOff, Deputy Chairman
of the Customs Control Committee of the Ministry of Finance of the
Republic of Kazakhstan Serzhan Duisebayev asserted that the
Presidents of Russia, Belarus, and Kazakhstan will meet November 27
in Minsk to sign the underlying technical agreements that will
establish the Customs Union's legal foundation. These agreements
include a common customs code and unified customs tariff.
Officially, he said, the Customs Union will be launched as of
January 1, 2010, but the unified customs code and customs tariffs
will become active July 1, 2010. On July 1, 2011, the three member
states will abolish internal borders, having established a unified
broad-spectrum regime of customs tariffs, taxes, internal
administration, and governing legislation. Duisebayev stressed the
continued validity of all bilateral and international tariff
treaties -- the much anticipated new unified tariff will not impact
previously negotiated and ratified treaties. According to
Duisebayev, Ministry of Industry and Trade officials have reported
the successful negotiation of 95% of tariffs.

ADMINISTRATIVE STRUCTURE TAKING FORM

4. (SBU) Duisebayev asserted that the Customs Union's
administrative structure is also rapidly taking form. Currently
based at the Eurasian Economic Union building in Moscow, Duisebayev
said that the administration will eventually move into a new complex
in Moscow. According to current plans, a Customs Union Commission
will be the "tri-party nerve center" of decision-making. A
Secretariat, also based in Moscow, will support the Commission.
Proportional representation from each member state will staff the
Secretariat's numerous departments. (COMMENT: If "proportional"
means by population, Russia will hugely dominate. END COMMENT.)

CONCERNS SAID TO BE LARGELY PRACTICAL

5. (SBU) Duisebayev told EconOff that a non-tariff agreement will
specifically exclude protective and anti-dumping measures. No
single member state will be able to introduce trade bans without the
support of the other members, he said. In the future, only the
Customs Union Commission will have the authority to introduce or
lift trade restrictions. (COMMENT: While practical in theory, each
country will have a proportionally different number of votes in the
Commission, allowing significant political influence into the
process. END COMMENT.)

6. (SBU) Duisebayev highlighted the many pending practical issues.
Member states are negotiating unified tariffs, but the Secretariat
and the Commission later will determine the mechanism for the
distribution of customs fees and relevant taxes collected at the
point of entry. According to Duisebayev, Customs Union agreements
will not impact existing legislation and accords unless specifically
addressed and negotiated by the Commission. As a result, Duisebayev
pointed to varied Value Added Tax (VAT) rates as a potential area of

ASTANA 00001982 002.2 OF 002

conflict. In his opinion, some businesses might prefer Kazakhstani
points of entry, because its VAT (12%) is lower than Russia's (18%).

AMENDMENTS EXPECTED TO CURRENT CUSTOMS CODE

7. (SBU) According to Duisebayev, Kazakhstan has indefinitely
suspended further development of Kazakhstan's new Customs Code, on
which officials had been working diligently in order to meet WTO
standards. Nonetheless, Parliament and the President are expected
to approve several long-anticipated amendments to the existing code
by the end of November. These amendments will contain declaration
rights for foreign citizens, ex-officio rights for customs agents to
seize counterfeit goods at the border, and standardized guidelines
for the valuation of goods.
CUSTOMS UNION'S CUSTOMS CODE

8. (SBU) The current draft of the Customs Union's customs code
contains eight sections, 50 chapters, and 373 articles. Its 286
references (grandfathered provisions from each member state) include
48 references to international treaties, 56 references to the
decision of the Custom Union Commission, and 182 references to
national legislation. Duisebayev proudly highlighted the success of
Kazakhstani negotiators in integrating about 50% of Kazakhstan's
current customs norms into the new customs code. However, he
acknowledged that Kazakhstan still had to compromise on some of its
more progressive customs policies. Duisebayev described existing
customs legislation as "uneven," with trade more liberalized in
Kazakhstan than in Russia. "Now, they would like to come up with
something in the middle; not as liberal as in Kazakhstan, and not as
conservative as in Russia. Russia was also very surprised to see
private businesses taking part in discussions of new (customs)
legislation in Kazakhstan," Duisebayev asserted.

EXPERIMENTAL BORDER COOPERATION

9. (SBU) The Deputy Head of the Customs Control Organization
Department at the Customs Control Committee, Dauren Tulemissov,
described Kazakhstani and Russian authorities' joint, "experimental"
operations at 15 points of entry along their border. He explained
the role of the importing country to manage customs procedure, while
the exporting country has no influence at these test sites.
Tulemissov termed implementation of this procedure difficult due to
the reluctance of both countries' authorities to relinquish control
over exports.

10. (SBU) COMMENT: Working-level officials throughout the
Kazakhstani government continue to grapple with the technical
implementation of the highly politicized RBK Customs Union, even
while providing positive spin to outside interlocutors. Because the
decision to create the Customs Union was political, the expert-level
bureaucrats are now obligated to try to make it work, even if it
means Kazakhstan will have to cede some of its progressive
legislation of the last decade. Those on the front lines, the
Kazakhstani Customs Agents, hope that the representational nature of
the proposed governing structure will protect their sovereign
interests. However, their ability to influence policy of a Customs
Union headquartered in Moscow, and likely dominated by
proportionately larger Russian interest groups, remains to be seen.
Meanwhile, Kazakhstani customs officials continue to demonstrate
their commitment to progressive customs procedures, as evidenced by
the impending amendments to the current Customs Code. Whether they
can do so or not in the RBK Customs Union remains to be seen. END
COMMENT.

HOAGLAND

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