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Economic Relations between Kazakhstan and Russia

                                  Contents

 INTRODUCTION                                                     1

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


     1.1 Mutual Trade
 8

     1.2 Cooperating in oil gas and power
        15
     1.3 Cooperating in sphere of transport and communication
           18

  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
           22


     2.2 The factors of economic interaction of Kazakhstan and Russia
          24


     2.3 Engaging the foreign investments
       26
     2.4 Cooperating in the field of electric power industry
      27
     2.5 Cooperating in the field of machine construction industry
       28
     2.6 Cooperating in the field of a uranium industry
      29

  3. involvement in international organizations,
     kazakhstan and russia
                               31

     3.1 The Eurasian Union: Realities and Perspectives
       34
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    |
|Federatio|        |        |        |        |        |        |        |
|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      |
|Tajikista|        |        |        |        |        |        |        |
|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   |
|Federatio|        |        |        |        |        |        |        |
|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    |
|Tajikista|        |        |        |        |        |        |        |
|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

|Group         |Annual        |Regions       |A share in    |
|              |commodity     |              |common        |
|              |circulation   |              |commodity     |
|              |              |              |circulation   |
|I             |From 200,0 up |Moscow,       |0,465         |
|              |to 500,0 mln  |Chelyabinsk,  |              |
|              |of dollars    |Ekaterenburg, |              |
|              |              |Orenburg and  |              |
|              |              |Tyumen region |              |
|II            |From 100,1 up |Omsk, Irkutsk,|0,22          |
|              |to 200,0 mln  |Kemerovo,     |              |
|              |of dollars    |Moscow region.|              |
|              |              |Altay region  |              |
|              |              |and           |              |
|              |              |Novosibirsk   |              |
|              |              |region        |              |
|III           |From 50,1 up  |Kurgan region,|0,115         |
|              |to 100 mln of |Republic of   |              |
|              |dollars       |Bashkortostan,|              |
|              |              |Republic of   |              |
|              |              |Hakasya,      |              |
|              |              |Krasnoyarsk   |              |
|              |              |region and    |              |
|              |              |Samara region |              |
|IV            |From 20,1 up  |Perm, Tomsk   |0,095         |
|              |to 50,0 mln of|region,       |              |
|              |dollars       |Republic of   |              |
|              |              |Tatarstan,    |              |
|              |              |Nizhniy-      |              |
|              |              |Novgorod,     |              |
|              |              |Belgorod,     |              |
|              |              |Volgograd,    |              |
|              |              |Saratov,      |              |
|              |              |Rostov,       |              |
|              |              |Vladimir, Tula|              |
|              |              |region and.   |              |
|              |              |St.-Petersburg|              |
|V             |Up to 20 mln  |Others 45     |0,105         |
|              |dollars       |regions of    |              |
|              |              |Russian       |              |
|              |              |Federation    |              |

    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  |        |        |        |
|mln of US    |      |       |       |       |        |        |        |
|dollars      |      |       |       |       |        |        |        |
|In % to the  |      | 112,7 | 88,5  | 78,1  | 74,8   | 169,8  | 109,7  |
|appropriate  |      |       |       |       |        |        |        |
|period of the|      |       |       |       |        |        |        |
|previous year|      |       |       |       |        |        |        |
|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   |
|appropriate  |      |       |       |       |        |        |        |
|period of the|      |       |       |       |        |        |        |
|previous year|      |       |       |       |        |        |        |
|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|
|appropriate  |      |       |       |       |        |        |        |
|period of the|      |       |       |       |        |        |        |
|previous year|      |       |       |       |        |        |        |
|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   |
|gravity of   |      |       |       |       |        |        |        |
|Russia in    |      |       |       |       |        |        |        |
|total amount |      |       |       |       |        |        |        |
|of export    |      |       |       |       |        |        |        |
|from         |      |       |       |       |        |        |        |
|Kazakhstan,  |      |       |       |       |        |        |        |
|in %         |      |       |       |       |        |        |        |
|Specific     | 49,9 | 54,8  | 45,8  | 39,4  | 36,7   | 48,7   | 45,4   |
|gravity of   |      |       |       |       |        |        |        |
|Russia in    |      |       |       |       |        |        |        |
|total amount |      |       |       |       |        |        |        |
|of import in |      |       |       |       |        |        |        |
|Kazakhstan,  |      |       |       |       |        |        |        |
|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
“Êàçàòîìïðîì” consumes Russia, USA,  Western  Europe,  Southern  Korea  and
other countries.
      The  company  “Êàçàòîìïðîì”  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 ò of a dust and 300  ò  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/


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