Tuesday, 11 November 2014

Kazakhstan's Deepening Ties with Europe

Published in Analytical Articles

By Nicklas Norling (11/11/2014 issue of the CACI Analyst)

On October 9, Kazakhstan and the EU concluded negotiations on an enhanced Partnership and Cooperation Agreement, superseding the PCA that had been in force since 1999. The agreement, the first of its kind, is primarily a result of strengthening trade and investment ties between Kazakhstan and EU countries developed over the past 15 years. Kazakhstan is among the most economically EU-oriented post-Soviet states and one of only three whose trade with the EU is growing relative to that with other countries. The enhanced partnership will serve as a foundation to further strengthen these ties but the EU must upgrade Kazakhstan in its list of priority countries to exploit the partnership’s full potentials.

BACKGROUND: Kazakhstan and the EU established diplomatic relations in 1992, after which Kazakhstan opened a liaison office in Brussels and the European Commission set up a delegation in Almaty. Kazakhstan and the EU signed a Partnership and Cooperation Agreement in 1995, shortly after the EU entered into a similar agreement with Russia. The Kazakhstan-EU PCA entered into force in 1999 for a ten-year period and terminated in 2009. Work during these years has been conducted through a Cooperation Council, a Cooperation Committee, various subcommittees, a Parliamentary Cooperation Committee, and regular meetings within the framework of the EU-Central Asia dialogue.

In 2011, joint work began on a new enhanced PCA up to date with the expanding Kazakhstan-EU ties. Eight rounds of negotiations have been held over the past three years, with particular attention paid to the economic component of the agreement, which had to be brought up to speed with Kazakhstan’s membership in the post-Soviet Customs Union and its future accession to the WTO.

The fact that Kazakhstan and the EU have reached the level of an “enhanced” partnership today owes principally to growing economic links between Kazakhstan and Europe. Nearly half of Kazakhstan’s gross foreign direct investments since 1991 come from EU countries. Over the past two decades, the EU has become Kazakhstan’s leading trade partner with total trade – imports and exports – in 2013 being valued at nearly US$ 38 billion. The EU’s share in Kazakhstan’s total foreign trade has grown from 29 percent in 1999 to 36 percent in 2013 while Russia’s share has been nearly halved during these years – from 26 percent to 13.5 percent (all data from IMF’s Direction of Trade statistics). 

In 2013, only Russia, Moldova, and Azerbaijan had a higher share of EU trade in their total foreign trade among the non-Baltic ex-Soviet countries. It is noteworthy that – with the exception of Kazakhstan, Moldova, and Azerbaijan – the EU’s share in total trade among all members of this group of 12 countries declined from 2005 to 2013 (all data from IMF Direction of Trade Statistics). In other words, not only is Kazakhstan one of the most economically EU-oriented but together with Moldova and Azerbaijan it is becoming increasingly so.

Kazakhstan is today the EU’s third largest trading partner in the post-Soviet space after Russia and Ukraine and the gap between Ukraine and Kazakhstan – presently US$ 7 billion – is steadily shrinking. According to Eurostat, Kazakhstan has attracted more FDI from EU countries than any other former Soviet country aside from Russia. The EU’s outward stock of FDI to Kazakhstan roughly triples that directed to neighboring Ukraine and amounts to slightly less than half its FDI to Russia. 

Among non-OPEC countries, Kazakhstan is the third largest energy supplier to Europe after Russia and Norway and provides a quarter of Germany’s oil. As much as 60 percent of Kazakhstan’s oil is exported to Europe. China and other powers have lately been buying as much as they can and Europe’s continued success in this endeavor will depend on the strength of the EU-Kazakhstan partnership.

IMPLICATIONS: The enhanced PCA is much less far-reaching than the political association agreements and free trade deals that the EU has offered to Ukraine, Georgia, and Moldova even if it is more ambitious than the accord it replaced. This reflects, in part, the EU’s greater prioritization of the countries involved in its Eastern Partnership program. For example, EU Development Assistance to Central Asia for 2014-2020 amounts to a meager 1 billion euros while that extended to countries participating in the European Neighborhood Policy in the same time period reaches 18.2 billion euros, and include provisions of free trade and visa liberalization.

That being said, Kazakhstan is the first post-Soviet country to have concluded an enhanced PCA with the EU, which lends it some significance. Russia has been negotiating a similar agreement with the EU since 2008 but the talks have now stalled. Thus, the agreement is arguably the most ambitious tried outside of the Eastern Partnership countries and will put Kazakhstan-EU ties on a firmer foundation.

The EU-Kazakhstan agreement stops short of regulating tariffs but extends to other spheres of economic relations, including reduction of non-tariff barriers to trade, services, capital movements, energy trade, and intellectual property rights. Counting about 280 pages, the agreement spans cooperation in the fields of foreign and security policy, business, sustainable development, cooperation in “justice, freedom, and security”, and transport and trade – totaling around 30 key sector policy areas.

Since 2011-2012, security has increasingly figured into the EU’s key priorities in Central Asia, in part because of the drawdown of NATO troops in Afghanistan. It is conceivable that the EU views Kazakhstan as a stabilizing “anchor state” in Central Asia. Not only is Kazakhstan by far the most developed country in the Central Asian region but it has also played a helpful role in Afghanistan’s reconstruction, e.g. by extending foreign aid, investments, and offering scholarships to Afghan students. Kazakhstan is now in the process of establishing its own regional foreign aid agency, Kazaid, which will be headquartered in Almaty.

The EU appears to belatedly have recognized Kazakhstan’s significance with the adoption of an enhanced partnership. José Manuel Barroso’s visit to Kazakhstan in 2013 was the first ever visit by a President of the European Commission to the country. President Nazarbayev, by contrast, has visited Brussels seven times since 1991. That Barroso has scheduled trips to Azerbaijan almost yearly for the past few years – on par with Chinese and Russian presidents’ tours of Kazakhstan – nonetheless indicates the higher status of the Eastern Partnership countries, even if the Kazakhstan-EU partnership is enhanced.

CONCLUSIONS: The enhanced PCA between Kazakhstan and the EU is a step forward in relations between the two. Yet it seems as if the EU is still somewhat overlooking Kazakhstan’s importance. Kazakhstan will be a key oil supplier to Europe for decades to come and one of the most important sources of energy diversification. While a member of the Customs Union, Kazakhstan is among the most economically EU-oriented of the post-Soviet states and this trend is – in contrast to most other post-Soviet countries – strengthening rather than weakening. EU FDI flowing into Kazakhstan are second only to Russia among post-Soviet states, which is all the more impressive when considered on a per capita basis.

For Kazakhstan, the EU link is critical to its desired development, moving from a solidly middle-income to a high-income country with a Western-type accountable government. While the new enhanced partnership goes some way towards solidifying this link, the EU must show that the partnership is “enhanced” in practice. An annual or biannual heads of state “Kazakhstan-EU summit” – held in Brussels and Astana alternately – would match the diplomatic attention Russia and China gives Kazakhstan and create the conditions needed to fully exploit the potentials of this enhanced partnership.   
Nicklas Norling, Ph.D., is Research Fellow at the Central Asia-Caucasus Institute and Silk Road Studies Program. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

(Image Attribution: European Council

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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.


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