# Economic Relations between Kazakhstan and Russia (Diplom)

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Economic Relations between Kazakhstan and Russia

Contents

INTRODUCTION 1

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

1.2 Cooperating in oil gas and power 15

1.3 Cooperating in sphere of transport and communication 18

1. 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

1. 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:

• Interaction in oil and gas and power sphere.

• Cooperating in sphere of transport and communications.

• Cooperating in sphere of safety.

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 (%)

 1994 1996 1997 1998 1999 2000 2001 •Russian Federation 36,3 54,8 45,8 39,4 36,7 48,7 45,4 • 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 •Uzbekistan 7,8 2,1 1,5 2,2 2,4 1,5 1,3 •Kyrgystan 2,9 2,1 1,5 1,2 0,7 0.6 0,4 • Tajikistan 0,5 0,4 0,1 0,1 0,1 0,1 0

# The Diagrama1

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

 1994 1996 1997 1998 1999 2000 2001 •Russian Federation 44.5 42 35,2 29.6 19,8 19,5 20,2 • 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 •Uzbekistan 4 3,4 2,3 2,2 1,2 1,5 1.4 •Kyrgystan 1,9 1,9 1 1,2 1,1 0.6 1 • Tajikistan 03 1 0.8 0.8 08 0.6 0,6

# 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

Diagram 3

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

The important place in the Russia -Kazakhstan links occupies frontier cooperating, on which share it is necessary 71,5 % from common commodity circulation. Most actively explicate trade -economic links with frontier regions of Kazakhstan Omsk, Orenburg, Astrakhan, Chelyabinsk, Novosibirsk region and Altay region. From regions of Russia the ready roll stock of black metals, pipe steel, petroleum, electric motors, automobiles, forest products, coal, footwear, fabrics and other goods is taken out. In export of many frontier subjects of Federation significant volume is necessary on production of a petrochemical industry (Volgograd, Omsk, Samara region, Altay region - more than 70 %).

In the Russia -Kazakhstan frontier region more 300 share enterprises, among which such large interstate join, as “Kazroshim”, “Koksohim”, automobile complex on basis Ural - for and Kustanay diesel factory operate.

The essential propagation in trade with Kazakhstan was received with barter operations (57 %). So, Orsk meat factory the combine sends in Kazakhstan in basic production of the manufacture and receives in exchange raw material for manufacture of this production - living cattle and meat. The joint-stock company “Nosta” receives from Kazakhstan immovable coal and delivers metals.

The significant experience of mutual economic cooperating with frontier regions of Kazakhstan accumulated in the Orenburg region, and also Pavlodar region of Kazakhstan with frontier regions of Russia. Now 18 % of the Orenburg export and more than 40 % of import have on Kazakhstan.

By the largest foreign trade partner of Republic Bashkortostan, Altay and Krasnoyarsk edges, Kemerovo, Irkutsk, Omsk, Orenburg, Sverdlovsk and Chelyabinsk regions is the Pavlodar region.

As a whole before Kazakhstan in mutual trade with Russia there is a series of perspective tasks, which decision will influence definitely a common economic situation in the country.

One of the important tasks is the variation trade balance of Kazakhstan from Russian Federation from negative in positive. Besides the gradual variation of structure commodity circulation in favorable for Republic of Kazakhstan a direction is desirable.

Radiating from interests of two states, it is expedient in the nearest perspective to consider a complex of measures on hardening links of frontier regions. The necessity of creation of legal fundamentals of a development of frontier regions does not call doubts. On our sight, it is necessary to speed up development of the defining laws. Among them Laws About state support of a socio economic development of frontier territories Republic of Kazakhstan, About free economic regions, About frontier trade. It is necessary also to speed up ratification four sided of the Agreement on basic principles of frontier cooperating of the states - the participants of the Contract about a deepening of integration in economic and humanitarian regions from March 29, 1996.

Obvious presence of potential and mutually advantageous opportunities of Russia and Kazakhstan also is by way of use of the optimum shapes of specialization, density of the industrial and financial capital, use of effective financial instruments, architecture of optimum commodity, financial and transport streams. In this connection special urgency in a development Kazakhstan – Russia of links was got with problems of a synchronization of legislative and normative basis of the countries. It would be expedient to realize step-by-step transition to collection of the VAT on destination in Kazakhstan – Russia to trade, having begun it(him) from machines, equipment, vehicles.

Not less important the coordinated marketing strategy of Kazakhstan and Russia in the international markets is represented, where the saving and hardening of common positions is quite possible. The priority direction represents perfecting the organizational shapes of activity Kazakhstan and Russian suppliers in the world markets. Them can become cartel of the agreement.

One of the important instruments of hardening of two-way communications could become creation of conditions for expansion of contacts between the enterprises, creation of the share enterprises. On official dates (2000) in republic 220 share Russia -Kazakhstan enterprises and 88 enterprises with the 100--percent Russian capital actively work. The majority JV in republic, including Russia-Kazakhstan JV, has trade –intermediary directedness. However as against other states Russia- Kazakhstan JV of an industrial directedness envelop considerably wider spectrum of spheres of activity - from production and processing of natural operational life up to production of a high scale of processing that in a defined measure confirms an overall performance Russia- Kazakhstan JV. At the same time Russia –Kazakhstan JV for the present do not play that role, which they could play in a development of trade -economic cooperating. Therefore in this direction the active support is expedient on the part of state structures.

1.2 Cooperating in oil gas and power sphere.

The given direction of cooperating between two countries by us is one of perspective. The structure of the Kazakhstan export of oil on the countries in 2001 is characterized by lowering of a share of delivering in the countries of CIS (17 %) and expansion of geography of export of oil in the countries of foreign countries (83 %) (Diagrama5).

The indexes of export of petroleum in 2001 essentially have varied as contrasted to 2000. Alongside with export of Kazakhstan realizes import of petroleum. And 98 % of all imported volumes of petroleum are necessary on Russian Federation.

The lowering of the excise rates on imported petrol with 80 up to 31 EURO per ton in 2001 and falling recently of world prices per oil promoted magnifying of delivering of the Russian oil for in-house processing. The export of petroleum to the countries of CIS became more attractive for Russia, than the delivering of oil on the world market, as, for example, in Kazakhstan of the price on the same aspects of petroleum is much higher Russian.

Kazakhstan more than on 50 % depends on Russia in a ratio of delivering of crude oil on refinery factory in Shimkentand Pavlodar receive west Siberian oil on the algorithm manifold from Omsk. Pavlodar refinery factory on 100 % depends from west Siberian of oil. Shimkent usually works on 75 % on west Siberian and on 25 % on raw material Kumkol of a deposit. Today dependence from of west Siberian oil “Orgsintez” is reduced half at the expense of use of the Aktyubinsk oil, transport by a railway transportation from west of Kazakhstan. Because of lowering production of oil on west Siberian deposits, fadeout of payments and mutual debts the question of security by oil Pavlodar and Shimkent refinery factory more than once acquired critical character, and the capacity factor of powers of these enterprises frequently lowered below 0,5.

Its technological dependence on Russia falls into basic problems Pavlodar refinery factory: the production cycle of the enterprise is calculated for consumption west Siberian of oil with the low contents of sulfur and paraffin. The perspectives flagship of the Kazakhstan oil processing is complicated with its neighborhood with the Russian factories - competitors:

Omsk, Ufa, Volgograd refinery factory by the enterprises being vertically - integrated, they have stable access to crude oil, besides on reduced prices, which the necessities of northern Kazakhstan in petroleum could at desire completely satisfy.

# Structure of export of the Kazakhstan oil, 2001

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 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.

1. 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 circulation mln of US dollars 4 265,5 4 809,0 4 257.2 3 323.2 2489,2 4227,6 4 639,3 In % to the appropriate period of the previous year 112,7 88,5 78,1 74,8 169,8 109,7 Export, mln of US dollars 2 365,8 2484,4 2 287,8 1 611,4 1 138,6 1 769,1 1 748,4 In % to the appropriate period of the previous year 105 92,1 70,4 70,7 155,4 98,8 Import, mln of US dollars 1 899.7 2 324,6 1 969,4 1 711,8 1 350,6 2458,5 2 890,9 In % to the appropriate period of the previous year 122,4 84,7 86,9 78,9 182 117,6 i Balance, mln of US dollars 466,1 159,8 318,4 -100,4 -212 -689,4 -1 142,5 Specific gravity of Russia in total amount of export from Kazakhstan, in % 45,1 42 35,2 29,6 19,8 19,4 20,2 Specific gravity of Russia in total amount of import in Kazakhstan, in % 49,9 54,8 45,8 39,4 36,7 48,7 45,4

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

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.

# 3.1The 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:

1. 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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