RESTRICTED
WT/TPR/S/288
1 October 2013
(13-5230) Page: 1/103
Trade Policy Review Body
TRADE POLICY REVIEW
REPORT BY THE SECRETARIAT
KYRGYZ REPUBLIC
This report, prepared for the second Trade Policy Review of the Kyrgyz Republic, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the Kyrgyz Republic on its trade policies and practices.
Any technical questions arising from this report may be addressed to Ms. Denby Probst (022 739 5847) and Mr. Rosen Marinov (022 739 6391).
Document WT/TPR/G/288 contains the policy statement submitted by the Kyrgyz Republic.
Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on the Kyrgyz Republic. This report was drafted in English. WT/TPR/S/288 • Kyrgyz Republic
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CONTENTS SUMMARY ...... 8 1 ECONOMIC ENVIRONMENT ...... 10 1.1 Main Features ...... 10 1.2 Recent Economic Developments ...... 11 1.3 Trade and Investment Patterns...... 13 1.4 Outlook ...... 17 2 TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES ...... 18 2.1 General Constitutional and Legal Framework ...... 18 2.2 Development and Administration of Trade Policy ...... 18 2.2.1 Main trade laws ...... 18 2.2.2 Ministry and private-sector involvement in trade policy ...... 19 2.2.2.1 Government trade policy framework ...... 19 2.2.2.1.1 WTO inter-departmental Commission ...... 20 2.2.2.1.2 Ministry of Economy ...... 20 2.2.2.2 Involvement of the private sector in trade policy ...... 20 2.3 Trade Policy Objectives ...... 21 2.3.1 General objectives ...... 21 2.3.2 Sectoral objectives ...... 21 2.4 Trade Agreements and Arrangements ...... 21 2.4.1 Participation in the WTO ...... 21 2.4.2 Regional, bilateral, and preferential trade ...... 22 2.4.2.1 Overview ...... 22 2.4.2.2 Free-trade agreements ...... 23 2.4.2.3 Eurasian Economic Community ...... 24 2.4.2.4 Customs Union ...... 24 2.4.3 Preferential regimes ...... 25 2.5 Trade Disputes and Consultations ...... 26 2.5.1 Dispute settlement in the WTO ...... 26 2.5.2 Regional or bilateral dispute systems ...... 26 2.6 Foreign Investment Regime ...... 26 2.6.1 Legal framework ...... 26 2.6.2 Public Investment Programme (PIP) ...... 27 2.6.3 Investment policy ...... 27 2.6.4 Bilateral invest agreements (BIAs) and other initiatives ...... 28 3 TRADE POLICIES AND PRACTICES BY MEASURE ...... 29 3.1 Measures Directly Affecting Imports ...... 29 3.1.1 Customs procedures ...... 29 3.1.1.1 Customs legal framework and Customs Code ...... 29 3.1.1.2 International, regional, and bilateral agreements and cooperation on customs ...... 30
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3.1.1.3 Developments on trade facilitating measures ...... 31 3.1.1.4 Simplified import procedures ...... 32 3.1.1.5 Free economic zones ...... 32 3.1.1.6 Customs brokers ...... 33 3.1.1.7 Pre-shipment inspection ...... 33 3.1.1.8 Other customs matters ...... 33 3.1.2 Customs valuation ...... 33 3.1.2.1 Overview of basic rules ...... 33 3.1.2.2 Price sensitive products ...... 34 3.1.3 Rules of origin ...... 35 3.1.3.1 Non-preferential ...... 35 3.1.3.2 Preferential ...... 35 3.1.3.3 Special rules of origin in free economic zones ...... 36 3.1.3.4 Notifications ...... 36 3.1.4 Tariffs ...... 36 3.1.4.1 Nomenclature ...... 36 3.1.4.2 MFN applied tariffs ...... 36 3.1.4.3 WTO bindings ...... 38 3.1.4.4 Applied rates exceeding bound rates ...... 38 3.1.4.5 Preferential and duty-free regimes...... 39 3.1.4.6 Seasonal duties ...... 39 3.1.5 Other charges affecting imports ...... 39 3.1.5.1 Charges and fees upon importation ...... 39 3.1.5.2 Value-added tax (VAT)...... 40 3.1.5.3 Excise taxes ...... 41 3.1.5.4 Sales tax ...... 42 3.1.5.5 Special tax exemptions ...... 42 3.1.6 Import prohibitions, restrictions, and licensing ...... 43 3.1.6.1 Import prohibitions ...... 43 3.1.6.2 Quotas ...... 43 3.1.6.3 Licensing ...... 44 3.1.7 Contingency measures ...... 46 3.1.7.1 Anti-dumping ...... 46 3.1.7.2 Countervailing duties ...... 47 3.1.7.3 Safeguards ...... 47 3.1.8 Other measures ...... 48 3.1.9 State trading and import-related operations of state enterprises ...... 48 3.1.10 Standards and other technical requirements ...... 48 3.1.10.1 Standards ...... 48 3.1.10.2 Technical regulations ...... 49
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3.1.10.3 Conformity assessment ...... 50 3.1.10.4 Cooperation at the regional level ...... 50 3.1.10.5 Sanitary and phytosanitary requirements ...... 51 3.1.10.5.1 Overall framework ...... 51 3.1.10.5.2 Legal framework...... 51 3.1.10.5.3 Labelling ...... 52 3.1.10.5.4 Cooperation at the regional level...... 52 3.2 Measures Directly Affecting Exports ...... 53 3.2.1 Procedures ...... 53 3.2.1.1 Certificate of origin ...... 53 3.2.2 Export taxes, charges, and levies ...... 53 3.2.2.1 Export taxes ...... 53 3.2.2.2 Other taxes on exports ...... 56 3.2.3 Export prohibitions, restrictions, and licensing ...... 57 3.2.3.1 Export prohibitions ...... 57 3.2.3.2 Export licences ...... 57 3.2.3.3 Export controls ...... 58 3.2.4 Duty and tax concessions, subsidies, EPZs, and export-performance requirements ...... 59 3.2.5 Export operations of state enterprises, monopolies ...... 59 3.2.6 Export finance, insurance, and guarantees ...... 60 3.2.6.1 Export finance ...... 60 3.2.6.2 Export insurance ...... 60 3.2.7 Export promotion and marketing assistance ...... 60 3.2.7.1 Export Development Strategy ...... 60 3.2.7.2 Export Promotion ...... 61 3.3 Measures Affecting Production and Trade ...... 61 3.3.1 Legal framework for businesses including registration and licensing ...... 61 3.3.1.1 Types of business entities ...... 61 3.3.1.2 Business climate ...... 61 3.3.1.3 Business procedures ...... 62 3.3.1.4 Legal framework ...... 62 3.3.1.5 Small and medium-sized businesses ...... 63 3.3.2 Incentives, subsidies, and other government assistance ...... 63 3.3.2.1 General incentives ...... 63 3.3.2.2 High technology parks ...... 63 3.3.2.3 Subsidies ...... 63 3.3.3 Government Procurement ...... 64 3.3.3.1 Structure ...... 64 3.3.3.2 Main elements of the procurement law ...... 64 3.3.3.3 Recent developments and future initiatives ...... 65
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3.3.3.4 Kyrgyz Republic and the GPA ...... 65 3.3.4 Intellectual property rights ...... 65 3.3.4.1 Legal framework ...... 65 3.3.4.2 Framework ...... 66 3.3.4.3 Kyrgyz IP strategy ...... 66 3.3.4.4 IP enforcement ...... 67 3.3.4.5 Use of IP ...... 67 3.3.5 Role of state-owned enterprises, state monopolies, and privatization ...... 68 3.3.6 Competition policy and regulatory issues ...... 71 4 TRADE POLICIES BY SECTOR ...... 73 4.1 Agriculture ...... 73 4.1.1 Overview ...... 73 4.1.2 Border measures ...... 74 4.1.3 Domestic measures ...... 74 4.2 Mining ...... 75 4.3 Energy ...... 78 4.3.1 General features ...... 78 4.3.2 Electricity ...... 79 4.3.3 Hydrocarbons ...... 80 4.4 Manufacturing ...... 81 4.5 Services ...... 83 4.5.1 Financial services ...... 83 4.5.1.1 Banking ...... 84 4.5.1.2 Non-bank financial and credit institutions ...... 85 4.5.1.3 Securities market ...... 85 4.5.1.4 Insurance ...... 86 4.5.2 Communication services ...... 87 4.5.3 Transport ...... 88 4.5.3.1 Road ...... 89 4.5.3.2 Rail ...... 90 4.5.3.3 Air ...... 91 4.5.4 Tourism ...... 92 REFERENCES ...... 94 5 APPENDIX TABLES ...... 95
CHARTS
Chart 1.1 Product composition of merchandise trade, 2006 and 2012 ...... 15 Chart 1.2 Direction of merchandise trade, 2006 and 2012 ...... 16 Chart 1.3 FDI inflows during 2006-12 ...... 17 Chart 2.1 Main bodies involved in trade policy formulation and implementation ...... 19
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Chart 2.2 Preferential trade, 2007 and 2012 ...... 23 Chart 3.1 Distribution of MFN tariff rates, 2012 ...... 37 Chart 3.2 Average applied MFN and bound tariff rates, by HS section, 2012 ...... 38 Chart 3.3 Import licences, 2007-12 ...... 45 Chart 3.4 Main bodies involved in SPS matters ...... 51 Chart 4.1 Agricultural output by main category, 2007-11 ...... 73 Chart 4.2 Structure of manufacturing production, 2006 and 2012 ...... 82 Chart 4.3 Capacity utilization in manufacturing, 2006 and 2010 ...... 82 Chart 4.4 Passenger and cargo transport, 2006, 2009, and 2012 ...... 89 Chart 4.5 Passenger travel options to selected destinations, January 2013 ...... 92
TABLES
Table 1.1 Selected macroeconomic indicators, 2006-12 ...... 10 Table 1.2 Balance of payments, 2006-12 ...... 12 Table 2.1 Main trade-related legislation ...... 19 Table 2.2 Free-trade agreements or regimes ...... 24 Table 2.3 Main laws governing investment in the Kyrgyz Republic ...... 26 Table 2.4 Bilateral investment agreements ...... 28 Table 3.1 Overview of the Customs Code ...... 29 Table 3.2 Bilateral and regional agreements on cooperation on customs matters ...... 30 Table 3.3 Overview of imports under simplified procedures, 2007-12 ...... 32 Table 3.4 Free economic zone trade, 2007, 2010, and 2012 ...... 33 Table 3.5 Overview of customs valuation legislation ...... 34 Table 3.6 Rules of origin, the wholly obtained criteria ...... 35 Table 3.7 Tariff structure, 2006, 2009, and 2012 ...... 37 Table 3.8 VAT exemption list, 2013 ...... 40 Table 3.9 VAT exemptions on imported goods, works, and services ...... 41 Table 3.10 Goods subject to excise tax ...... 41 Table 3.11 Import prohibitions ...... 43 Table 3.12 Main laws concerning import licensing ...... 44 Table 3.13 Products subject to import licensing ...... 45 Table 3.14 State-trading enterprises ...... 48 Table 3.15 Technical regulations adopted during 2006-12 ...... 49 Table 3.16 Main laws concerning sanitary and phytosanitary measures ...... 52 Table 3.17 Certificates of origin for exported goods ...... 53 Table 3.18 Export duties ...... 54 Table 3.19 Export prohibitions ...... 57 Table 3.20 Products subject to export licensing ...... 57 Table 3.21 Laws and procedures on export controls ...... 59 Table 3.22 Export control list ...... 59
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Table 3.23 Types of business entities ...... 61 Table 3.24 Main laws governing business ...... 62 Table 3.25 Overview of procurement, 2011 ...... 64 Table 3.26 Main intellectual property laws ...... 66 Table 3.27 Objections filed and their consideration by the Appeals Council, 2006-12 ...... 67 Table 3.28 Court proceedings on IP, 2006-12 ...... 67 Table 3.29 Trends in intellectual property, 2007-2012 ...... 68 Table 3.30 Laws on state-owned property ...... 69 Table 3.31 State-owned enterprises and joint-stock companies ...... 69 Table 3.32 State-owned enterprises and joint-stock companies included in the Registry of Natural and Permitted Monopolies ...... 70 Table 3.33 Main competition laws ...... 71 Table 4.1 Registered mineral reserves, January 2012 and 2013 ...... 76 Table 4.2 Main energy indicators, 2006-12 ...... 78 Table 4.3 Selected financial system indicators, 2006-12 ...... 83 Table 4.4 Communication services, selected indicators, 2006-12 ...... 87 Table 4.5 Regulated telecommunication monopolies, 2012 ...... 88
BOXES
Box 4.1 Key structural weaknesses of the Kyrgyz electrical energy system ...... 80
APPENDIX TABLES
Table A1. 1 Merchandise exports by HS section and major HS chapter, 2006-12 ...... 95 Table A1. 2 Merchandise imports by HS section and major HS chapter, 2006-12 ...... 96 Table A1. 3 Merchandise exports by destination, 2006-12 ...... 97 Table A1. 4 Merchandise imports by origin, 2006-12 ...... 98 Table A1. 5 Trade in services, 2006-12 ...... 99
Table A2. 1 Selected notifications to the Central Registry of Notifications (CRN), 1 January 2007-30 June 2013 ...... 100
Table A3. 1 Tariff summary, 2012 ...... 102
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SUMMARY
1. The Kyrgyz Republic acceded to the WTO in 1998, with a very open trade regime and low tariffs. As a landlocked country with a predominantly mountainous terrain and several neighbours not yet WTO Members, the Kyrgyz Republic faces a number of challenges and opportunities. The Kyrgyz Republic's natural resources and tourism potential remain largely unrealized, and transport and infrastructure issues have limited its potential for further development and export. The 2010 ethnic violence, frequent changes in government and institutions, and tensions in certain regions have also created political uncertainties that have impacted the country's development and investment attractiveness.
2. The Kyrgyz economy is relatively diversified, with the GDP shares of services, mining, and construction on an upward trend, and that of agriculture declining. The service sector accounts for approximately half of GDP. The Kyrgyz economy grew erratically during the review period, on account of external shocks, harsh climatic conditions, political and ethnic crises, and a sharp decline in gold production in 2012. During the review period, the current account of the balance of payments remained in deficit.
3. The Kyrgyz Republic's total merchandise trade more than doubled during 2006-12. While exports have approximately doubled during the last six years, imports have more than tripled from a larger base, thus the Kyrgyz Republic maintains a merchandise trade deficit. The export base is narrow, with gold and agriculture products dominating. Despite its considerable potential for tourism and transport, the Kyrgyz Republic was predominantly a net importer of services during 2006-12. CIS countries remain the key trading partners, both as suppliers of imports and export destinations, although Switzerland has become a significant market for gold exports in recent years.
4. Although it registered an increase from 2006-07 levels, foreign direct investment (FDI) in the Kyrgyz Republic has not been commensurate with its potential dynamism and remains low relative to FDI inflows into neighbouring countries. FDI has mostly been concentrated in the processing, real estate, and services sectors. The main legal framework governing investment remains unchanged from the 2003 Law on Investments. The Government has placed a high priority on attracting foreign investment and recently increased efforts on outreach and created institutions to attract foreign investment.
5. While Kyrgyz legal provisions generally comply with WTO obligations and are aimed at facilitating trade, they are often undermined by inadequate resources or gaps in implementing regulations. There is also scope for improvement in the Kyrgyz Republic's notification record. The Kyrgyz Republic has yet to use the Dispute Settlement system or to initiate any anti-dumping or countervailing duty investigations.
6. The Kyrgyz Republic’s trade regime is likely to undergo changes in the near future, as the country is expected to join the customs union, currently comprised of Belarus, Kazakhstan, and Russia. Adopting the customs union's common external tariff (CET) would require re-negotiation of Kyrgyz tariff bindings at the WTO, which are lower, on average. The authorities are currently drafting a roadmap for acceding to the customs union; the draft might be finalized by the end of 2013. It is expected that Kyrgyz Republic would also be impacted by aligning its rules and procedures to that of the customs union, for example, harmonization of TBT and SPS rules could trigger significant changes in these policy areas as well.
7. Recent trade facilitating measures undertaken by the Kyrgyz Republic include the "paperless trade" initiative and a "single window" for customs, whereby work remains on-going. Free economic zone legislation remains in place, although changes are foreseen in the future. A simplified customs procedure for physical persons, allowing substitution of ad valorem tariffs with a uniform weight-based specific duty, remains in place; it continues to facilitate re-exports through the Kyrgyz Republic, although the list of eligible goods was formally shortened and re-focused on the textile industry during the review period. A number of non-tariff measures remain in place or were introduced during the period, in particular, prohibitions, seasonal duties, import licences, safeguard measures, and products subject to state-trading.
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8. The Kyrgyz Republic's MFN applied tariffs currently average 5% and have remained virtually unchanged during the period of review. It maintains low tariff protection overall, with over 20% of tariff lines bound at zero. Products with higher duty protection include tobacco, alcohol, fish, and clothing products. A number of applied tariffs currently exceed the Kyrgyz Republic's WTO tariff bindings.
9. During the period, the Kyrgyz Republic regularly used export duties, export licences, controls, and prohibitions. Government export promotion incentives remain an area that is very underdeveloped. There is not much on the export side to aid in export finance, insurance, or promote exports; although the government is currently in the process of approving its first export development strategy with the help of the ITC.
10. Standards and technical requirements remain an area under frequent change in the Kyrgyz Republic, especially as concerns SPS issues. The Kyrgyz Republic does not currently have an SPS inquiry point.
11. While the legal framework remains broadly unchanged since 2004, several developments have taken place in the area of government procurement. The state agency in charge of public procurement was dissolved in 2009, and its procurement functions are now under the Ministry of Finance. E-procurement was introduced in 2010 and implementation is on-going. The Kyrgyz Republic has yet to accede to the GPA.
12. Privatization of state owned enterprises, a process that commenced in the 1990s is still on- going but at a slower pace. Many of the remaining enterprises under state ownership are large, in strategically important industries such as mining, energy, and telecommunications. Many of the state owned enterprises operate under the Law on Natural and Permitted Monopolies and are subject to regulation, such as price controls.
13. The Kyrgyz Republic is endowed with considerable subsoil resources, but their economic potential remains largely untapped. Gold mining and processing is heavily concentrated in state ownership and accounts for a significant share of export revenue and GDP. The economic performance is therefore heavily dependent upon the operations of the single large-scale mine.
14. The Kyrgyz Republic has considerable hydropower potential and is a net exporter of electricity, but depends crucially on imports of hydrocarbons. The state retains control over all primary energy sources. Electricity generation and transmission remain underdeveloped and face several structural constraints, which exacerbate commercial losses and hamper investment in infrastructure maintenance and upgrades.
15. The Kyrgyz telecommunications market expanded throughout the review period, driven by sustained dynamism in mobile telephony and internet subscriptions. While there are no significant regulatory barriers to entry, market contestability could be strengthened through provisions that establish or clarify, inter alia: infrastructure-sharing obligations; interconnection terms; secondary- spectrum trading; (fixed and mobile) number portability; local loop unbundling; domestic mobile roaming; and frameworks allowing the entry of virtual-network operators and carrier (pre) selection for certain calls.
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1 ECONOMIC ENVIRONMENT
1.1 Main Features
1.1 The vast economic potential of the Kyrgyz Republic's natural resources and historic attractions remains largely unrealized. Its picturesque mountainous terrain and abundant water and subsoil reserves offer considerable opportunities to develop tourism, hydropower, and mining. While processed gold, derived from a single mine, accounts for nearly half of export earnings, a number of gold and other mineral deposits are yet to be commercially exploited.
1.2 The Kyrgyz economy is relatively diversified, with the GDP shares of services, mining (gold production), and construction on an upward trend, and that of agriculture on a downward path (Table 1.1). The services sector makes up approximately half of Kyrgyz GDP, largely on account of wholesale and retail trade (essentially re-exports) and telecommunications. Economic performance remains dependent on external factors, including weather conditions, world commodity prices, and terms of access to neighbouring countries' markets and infrastructure. Notwithstanding its declining GDP share, agriculture (crop and livestock farming) provides livelihood to about a third of the active workforce; some 66% of the population lived in rural areas at end 2011.
1.3 The economic disadvantages of the Kyrgyz Republic's landlocked situation are exacerbated by inadequate transport and energy infrastructure, and limited international air links. Years of poor maintenance have caused widespread deterioration; railroads and the electricity grid have not evolved beyond their Soviet-era configurations, and cannot ensure nationwide service coverage. High transportation costs and frequent power outages, coupled with domestic market fragmentation and numerous (nationwide and local) monopolies, continue to undermine competitiveness. The underdeveloped financial system, still largely dependent on financing from international development partners and worker remittances, is another impediment to economic growth.
1.4 The Kyrgyz Republic remains a net food importer, with a widening agricultural trade deficit; several staple foodstuffs are imported almost exclusively from Kazakhstan. Imported oil and gas are estimated to account for more than half of primary energy consumption. The unemployment rate has been high for over a decade, causing many working-age Kyrgyz to seek employment opportunities abroad.
Table 1.1 Selected macroeconomic indicators, 2006-12
2006 2007 2008 2009 2010 2011 2012 Miscellaneous Population growth (%) 1.1 0.8 1.1 1.3 1.1 1.4 2.0 Current GDP (US$ million) 2,833.3 3,803.4 5,140.7 4,691.5 4,794.8 6,197.8 6,474.9 e.g. GDP per capita at current 557.3 740.1 969.2 865.9 875.3 1,116.3 1,143.4 market price (US$) Real GDP (%age change) 3.1 8.5 8.4 2.9 -0.5 6.0 -0.9 Employment (%age change) 0.9 2.7 1.5 1.5 1.2 1.5 .. Unemployment rate (%) 8.3 8.2 8.2 8.4 8.4 8.5 .. Sectoral distribution of nominal GDP (%) Agriculture and forestry 28.7 26.9 23.5 18.8 17.4 16.6 17.5 Mining 0.4 0.5 0.5 0.5 0.6 0.8 1.3 Manufacturing 11.0 9.9 13.2 14.2 17.0 18.3 12.5 e.g. processed gold from Kumtor 3.1 2.7 5.9 7.3 11.3 12.2 6.6 mine Electricity, gas and water supply 3.5 2.7 1.4 2.2 3.1 3.4 3.0 Construction 2.7 3.6 5.3 6.7 5.5 4.9 5.7 Services 41.3 42.9 43.0 46.6 46.1 45.0 46.6 e.g. wholesale and retail trade, 18.4 17.9 16.3 16.8 16.0 15.2 16.2 repair WT/TPR/S/288 • Kyrgyz Republic
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2006 2007 2008 2009 2010 2011 2012 Hotels and restaurants 1.4 1.2 1.3 1.3 1.3 1.5 1.5 Transport and communication 6.1 7.4 7.9 8.8 8.6 8.1 8.6 Finance 0.5 0.8 0.8 0.7 0.6 0.6 0.6 Real estate 2.9 3.0 4.0 4.6 4.8 4.3 4.1 Government 4.4 4.3 4.6 5.3 5.6 5.1 5.1 Education 4.0 4.5 4.2 4.4 4.4 5.3 6.0 Health and social services 2.3 2.1 2.1 2.6 2.6 3.0 2.7 Community, social and personal 1.3 1.6 1.7 2.1 2.3 1.9 1.9 Tax on products 12.5 13.5 13.1 11.0 10.2 11.0 13.4 Government finance (% of GDP) Current revenue 22.0 25.0 24.2 27.5 26.0 27.0 28.5 Tax revenue 17.6 18.7 19.1 17.9 17.9 18.5 21.0 Current expenditure 22.2 20.8 19.7 24.9 27.9 28.8 32.9 Government total debt 72.4 57.0 48.6 58.5 59.7 50.1 50.0 Domestic debt 6.1 5.0 4.0 4.2 3.8 4.5 4.3 National accounts (%age change) Private consumption expenditure 17.3 2.7 11.5 -13.1 2.2 8.6 13.1 Government consumption -1.0 1.8 0.7 0.7 -2.5 1.3 3.8 expenditure Gross fixed capital formation 49.4 10.8 13.2 8.5 -7.1 -4.4 .. Exports of goods and services 8.9 25.8 9.1 -1.1 -11.7 15.7 -11.3 Imports of goods and services 45.0 11.0 13.6 -19.4 -6.9 14.9 18.5 Prices and interest rates (end-period) CPI (%age change, end-period) 5.1 20.1 20.0 0.0 19.2 5.7 7.5 Exchange rate KGS/US$ (annual average) 40.2 37.3 36.6 42.9 46.0 46.1 47.0 Real effective exchange rate -3.8 4.2 10.4 4.4 -4.3 6.9 -1.2 (%age change)a Memorandum: Current account balance -9.3 -6.0 -13.8 -2.0 -6.5 -7.8 -22.1 (% of GDP) Trade in goods and services 124.8 137.8 146.2 133.1 133.7 136.9 149.0 (% of GDP) Exports 45.3 53.2 53.9 54.6 52.3 55.0 48.7 Imports 79.5 84.6 92.3 78.5 81.4 81.9 100.4 International reserves, excl. gold 764.3 1,107.2 1,152.9 1,494.0 1,603.6 1,703.0 1,903.2 (US$ million) in months of imports of goods 3.0 3.0 4.0 4.9 4.1 3.6 3.3 and services Total external debt (% of GDP) 79.9 93.6 69.9 87.8 91.4 78.6 85.0 Public external debt (% of GDP) 69.4 54.3 40.6 53.7 55.4 47.5 47.9
.. Not available. a A negative sign indicates depreciation. Source: IMF (2012), International Financial Statistics; National Bank of Kyrgyz Republic online information; and authorities of the Kyrgyz Republic.
1.2 Recent Economic Developments
1.5 The Kyrgyz economy grew erratically during the review period, on account of harsh climatic conditions in 2009, domestic political and ethnic crises in 2010, and a sharp decline in gold production in 2012 due to several problems at the only large-scale mining facility. Amid the
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1.6 The government formed at end 2010 revisited some tax policies and took steps to improve tax administration. Recent efforts to improve the fiscal position have included: imposing limits on government agencies' spending; enforcing the exclusive placement of government securities through an auction system operated by the National Bank of the Kyrgyz Republic (NBKR); introducing stricter reporting requirements for the largest state-owned enterprises; and reducing the scope of the simplified import regime, allowing substitution of ad valorem tariffs with a uniform weight-based duty. During 2011-13, the authorities undertook to raise wages, pensions, and the minimum monthly income under social assistance programmes, resulting in an estimated 2% increase in budgetary outlays. Savings-oriented measures have focused on reducing the number of civil servants by 15% (savings estimated at 0.3% of GDP) and planned implementation of an electronic public procurement system. A fiscal amnesty programme aimed at expanding the tax base through reduction of informal economic activity was also launched in July 2013.
1.7 During the review period, inflation was driven mainly by international food and fuel prices, reflecting the relatively complete pass-through to domestic prices. Steady inflows of worker remittances and the recent increases of public sector wages and pensions also contributed to inflationary pressures. Mindful of the weaker (interest rate and credit) channels of monetary policy transmission in a transitional economy, the NBKR has retained the objective of containing inflation at single-digit levels, in the absence of adverse shocks. In the first half of 2013, inflation was 8.1% on an annualized basis.
1.8 The Kyrgyz Republic maintains a flexible exchange rate regime, without restrictions on payments and transfers for current international transactions. The NBKR has pursued a policy of limited intervention in the interbank foreign exchange market aimed at mitigating excessive volatility and ensuring orderly market conditions. Foreign exchange reserves more than doubled between 2006 and 2012.
1.9 During the review period, the current account of the balance of payments remained structurally in deficit, attributable above all to the goods component. While favourable gold prices have provided a boost to export revenue, it has remained a poor match for sustained merchandise imports driven by purchases of energy products, foodstuffs and capital goods. International development partners have continued to play a key role in financing the balance-of-payments gap.
Table 1.2 Balance of payments, 2006-12 (US$ million) 2006 2007 2008 2009 2010 2011 2012 Current account balance -264.2 -227.9 -707.6 -93.9 -312.5 -483.6 -1,430.6 Goods, services, and income -1,016.6 -1,246.4 -2,183.5 -1,301.1 -1,703.8 -2,322.2 -3,492.1 balance Goods and services balance -968.5 -1,195.9 -1,976.8 -1,119.7 -1,398.7 -1,663.1 -3,347.7 Goods balance -886.5 -1,275.8 -1,879.1 -1,119.8 -1,202.2 -1,668.9 -3,045.9 Exports 906.0 1,337.8 1,874.4 1,693.8 1,778.7 2,267.0 1,920.6 Imports 1,792.4 2,613.6 3,753.5 2,813.6 2,980.9 3,935.9 4,966.5 Services balance -82.0 79.9 -97.7 0.1 -196.5 5.8 -301.8 Exports 378.7 684.8 896.1 869.1 727.8 1,143.8 1,230.1 Imports 460.8 604.8 993.8 869.0 924.2 1,138.0 1,531.9 Income balance -48.1 -50.5 -206.7 -181.4 -305.1 -659.1 -144.4 Compensation of -24.2 -20.8 -24.3 -25.8 -32.3 -29.4 -28.9 employees Investment income -23.8 -29.7 -182.5 -155.6 -272.8 -629.8 -115.5 Current transfers (net) 752.4 1,018.5 1,476.0 1,207.1 1,391.3 1,838.7 2,061.5 General government 12.4 30.9 45.9 194.9 78.2 83.3 63.2 Other sectors 740.0 987.6 1,430.1 1,012.1 1,313.1 1,755.4 1,998.3
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2006 2007 2008 2009 2010 2011 2012 Capital and financial 287.9 892.7 385.7 416.4 423.7 893.3 1,138.4 account Capital account (net) -43.9 -74.9 -5.7 16.3 -11.1 64.1 166.1 Financial account (net) 331.8 967.6 391.4 400.0 434.8 829.2 972.4 Direct investment 182.0 208.9 377.1 189.6 437.6 693.6 372.1 Kyrgyz's direct 0.0 1.0 0.1 0.3 0.0 0.1 0.0 investment abroad Direct investment in 182.0 207.9 377.0 189.4 437.6 693.5 372.2 Kyrgyz Republic Portfolio investment -3.0 -28.3 -4.5 -13.9 27.1 -0.3 5.7 Other investment 138.8 786.9 18.7 224.3 -29.9 135.9 399.1 Assets (- accretion) -24.0 11.5 -352.0 -237.5 128.7 -232.1 144.1 Liabilities (+ accretion) 162.8 775.4 370.7 461.8 -158.6 368.0 450.8 Net errors and omissions 160.2 -348.1 415.5 -82.2 -45.8 -303.8 480.9 Overall balance of 183.9 316.7 93.6 240.3 65.5 105.9 188.7 payments
Source: National Bank of the Kyrgyz Republic online information. Viewed at: http://www.nbkr.kg/index1.jsp?item=138&lang=ENG [24.07.13]; and data provided by the Kyrgyz authorities.
1.10 Conscious of the need to improve the business environment, the authorities have taken steps to strengthen governance, streamline public administration and reduce bureaucracy. Recent structural reforms include: consolidating ministries and government agencies; reducing the number of licences and permits, as well as the entities with powers to inspect businesses; and establishing a State Service on Fighting Economic Crimes. Nevertheless, uncertainties stemming from weak protection of property rights and non-transparent licensing practices, particularly in mining, continue to discourage private investment. The business community has also flagged the authorities' poor compliance with legislative provisions requiring public consultations and regulatory impact assessments prior to the adoption or amendment of normative acts and regulations.
1.3 Trade and Investment Patterns
1.11 The Kyrgyz Republic's total merchandise trade more than doubled during 2006-12, with an unsteady pattern reflecting domestic socio-political instability and swings in international commodity prices. Total services trade mirrored that trend, albeit with more moderate fluctuations.
1.12 Manufactures, fuels, and agricultural goods accounted for more than two thirds of Kyrgyz export earnings in 2006. However, despite a general expansion of export volumes, the sum of their respective contributions in 2011 was less than that of gold exports; a drop in gold output occurred in 2012, but a rebound is expected in 2013 (Chart 1.1 and Table A1.1). The compositional shifts reflect the impact of socio-political tensions on domestic production, as well as world price developments. The composition of imports has remained relatively stable, with the shares of transport equipment (particularly motor vehicles and parts) and textiles expanding. Although the fuel bill more than doubled between 2006 and 2012, its share in total imports contracted by about 7 percentage points (Table A1.2).
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1.13 During 2006-12, on account of gold purchases at rising international prices, Switzerland became the main destination for Kyrgyz merchandise exports; in 2011, its share in merchandise exports proceeds exceeded that of all CIS countries (Chart 1.2 and Table A1.3). The Russian Federation has remained the principal supplier of goods imported into the Kyrgyz Republic, although its relative weight in aggregate Kyrgyz imports decreased by approximately 5 percentage points during the period (Table A1.4). Petroleum products, including those under a quota exempt from Russian export tax, account for about 57% of Kyrgyz imports from the Russian Federation. During the same period, merchandise shipments to and from China followed opposite trends, with the former's relative share contracting and the latter intensifying to reach 22.5% of total imports.
1.14 Despite its considerable potential for tourism and (transit-related) transport, the Kyrgyz Republic was predominantly a net importer of services during 2006-12. Its services trade deficit remains predominantly driven by railroad transport and, to a lesser degree, by road transport (Table A1.5). Tourism receipts have generally been on the rise, but have yet to offset the equally growing transport bill.
1.15 In general, foreign direct investment (FDI) in the Kyrgyz Republic has not been commensurate with its potential dynamism, partly because of the socio-political instability. According to the authorities, FDI inflows over 2006-12 were mainly channelled into services, particularly real estate and financial intermediation. There has also been substantial investment in processing industries. The principal countries of origin of FDI are Kazakhstan and Canada (Chart 1.3).
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Chart 1.1 Product composition of merchandise trade, 2006 and 2012 %
2006 2012
(a) Exports
Vegetable products Vegetable products 4.6 (II) Other Other 13.4 8.8 (II) 15.7
Mineral products Mineral products 22.4 (V) 14.9 (V) Transport Transport equipment equipment 3.0 (XVII) 8.3 (XVII) Machinery; electrical equip. Machinery; 6.4 (XVI) electrical equip. 4.2 (XVI)
Base metals & Base metals & Textiles & articles thereof articles thereof textile 3.4 (XV) Textiles & textile 4.4 (XV) articles articles 12.2 (XI) 12.2 (XI)
Precious stones Articles of stone, 26.8 (XIV) ceramic & glassware Precious stones 5.5 (XIII) 33.8 (XIV)
Total: US$794.1 million Total: US$1,683.2 million
(b) Imports
Vegetable Vegetable products Prepared foodstuff, products 3.4 (II) Other 3.6 (II) Other beverages & tobacco 11.1 Prepared foodstuff, 13.3 7.9 (IV) beverages & tobacco 8.2 (IV) Transport equipment 8.0 (XVII) Transport equipment Mineral 13.3 (XVII) products Mineral 22.4 (V) products 30.7 (V)
Machinery; electrical equip. 15.8 (XVI) Machinery; electrical equipment 11.8 (XVI)
Base metals & Chemicals articles thereof 9.0 (VI) 6.1 (XV) Base metals & Plastics & Textiles & Chemicals articles thereof Textiles & rubber textile articles Plastics & 8.5 (VI) 7.7 (XV) textile articles 4.2 (VII) 3.0 (XI) rubber 7.0 (XI) 5.0 (VII)
Total: US$1,718.2 million Total: US$5,373.9 million
Note: Data in brackets refer to the HS section number. Source: WTO calculations, based on data provided by the Kyrgyz authorities.
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Chart 1.2 Direction of merchandise trade, 2006 and 2012 %
Source: WTO calculations, based on data provided by the Kyrgyz authorities.
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Chart 1.3 FDI inflows during 2006-12
By economic activity By origin
Agriculture 0.2% Other services Mining 0.7% 4.1% Othera 16.3% EU27 Real estate & 18.8% leasing Other CIS 22.4% 0.3% Manufacturing Russian 39.9% Federation 5.8% Services CIS 28.6% 53.3% Canada 22.1%
Finance 20.0% Kazakhstan 22.5%
Transport & Construction Turkey China communication Wholesale 2.4% 2.6% 11.5% 2.8% & retail trade 7.4% Total: US$4,405.6 million a Including international organizations (2.9%) and the European Bank for Reconstruction and Development (0.6%). Source: WTO calculations, based on data provided by the Kyrgyz authorities.
1.4 Outlook
1.16 The Kyrgyz Republic's medium-term economic growth prospects remain uncertain due to the lingering socio-political tensions, which could undermine structural reform efforts. The Kyrgyz economy remains vulnerable to external shocks, including weather-related factors and fluctuations in global commodity prices. Inadequate infrastructure and an underdeveloped financial system continue to exacerbate its vulnerability. Given the scale of public expenditure needed to rehabilitate basic infrastructure and expand social services, in the medium term the fiscal (non-grant) and trade imbalances are very likely to persist. Recourse to external financing, including support from development partners, would probably remain a key factor in the acceleration of economic activity.
1.17 The authorities expect annual GDP growth of no less than 6% during 2013-16, on the assumption of a swift rebound in gold production and stable economic relations with the Kyrgyz Republic's main trading partners. The manufacturing sector is expected to quickly recover, while construction is projected to expand considerably. Inflation is expected to remain in the upper end of the 5%-10% range. The authorities acknowledge that economic performance may be considerably worse, in the event of adverse shocks.
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2 TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
2.1 General Constitutional and Legal Framework
2.1. There have been significant changes in the structure and operation of the Government following the 2010 ethnic violence, departure of the two previous presidents, establishment of an interim government, and the entry into force of a new constitution. The stability of the Government was threatened during the 2010 uprising, but the interim government proceeded with the planned referendum on a new draft constitution in June 2010. The Constitution was approved by the voters and immediately replaced the old constitution. Its most important aspect was a shift in power from the President to the parliament (Jogorku Kenesh). Under the Constitution, a hybrid system is established in which the President, Prime Minister, and parliament share power. Previously, the Prime Minister appointed the President; now the parliament has a role in appointing the President. Although the President is weaker under the new Constitution, the President has the authority to sign and publish laws, may return laws with objections to the Jogorku Kenesh, acts as Commander-in-Chief of the Armed Forces, and has the right to appoint and dismiss members of the Government.
2.2. The new Constitution also introduced changes to the judicial system, which is being simultaneously examined for reform. The changes for the judiciary involved the Constitutional Chamber, which shall act as part of the Supreme Court, and the mandate and appointment of judges. In 2012 a commission was established to prepare a strategy for judicial reform, in particular to make the process more transparent and reduce corruption. The reforms are scheduled to be finalized by 2016.
2.2 Development and Administration of Trade Policy
2.2.1 Main trade laws
2.3. The Law on State Regulation of Foreign Trade sets the overall framework for foreign trade, which includes the international exchange of goods, services, information, and rights with respect to intellectual activity, i.e. intellectual property rights. Its purpose is to protect the economic sovereignty of the Kyrgyz Republic, promote foreign trade activities, and ensure the integration of the Kyrgyz economy.1 Article 5 of the law sets out the principles of Kyrgyz foreign trade policy relations with foreign states. These are built on the basis of respect for obligations arising from international treaties, including international instruments relating to customs unions and free-trade areas.
2.4. Articles 3 and 9 set out the legal framework for foreign trade activities. Article 3 provides that foreign trade activities are regulated by the Constitution, this law, other laws and legal acts, and international treaties. Article 9 provides that the executive branch is responsible for regulations relating to foreign trade activities. Other provisions in the law provide for the customs tariff, quantitative restrictions, export controls, state monopolies, protective measures, prohibitions and restrictions, technical regulations, free economic zones, and promotion and monitoring foreign trade activities.
2.5. Two legislative changes to the Law, both in 2011, concerned export controls and export prohibitions.2 According to the authorities, these were a consequence of the changes in the Constitution that re-aligned powers granted to the President, parliament, and Prime Minister.
2.6. In addition to the main law on State Regulation of Foreign Trade, several other laws are concerned with trade policy and form part of the basic legal framework (Table 2.1). There are also many government decrees, resolutions, and orders that provide legal or regulatory direction and procedures on trade issues.
1 Law of the Kyrgyz Republic, 2 July 1997, No. 41. 2 Laws of the Kyrgyz Republic of 5 October 2011, No. 161 and 4 November 2011, No. 201.
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Table 2.1 Main trade-related legislation
Law Description Reference Law on State Regulation of Foreign trade framework 2 July 1997, No. 41 Foreign Trade Law on Licensing Framework for all licensing, including import and 3 March 1997, No. 12 export licensing Customs Code Customs framework for all matters for goods 12 July 2004, No. 87 crossing the border Customs Tariff Customs tariff and preferences 29 March 2006, No. 81 Law on Investment Main investment law framework 27 March 2003, No. 66 Anti-dumping Act Regulates conduct, proceedings, and application 31 October 1998, No. 139 of anti-dumping measures Law on Subsidies and Regulates conduct, proceedings, and application 31 October 1998, No. 140 Countervailing Measures of countervailing measures Law on Safeguard Regulates conduct, proceedings, and application 31 October 1998, No. 141 Measures of special safeguard measures The Act on Export Controls Provisions of the national system of export 23 January 2003, No. 30 controls Tax Code Overall tax law and policies 17 October 2008, No. 230 Civil Code Regulations of the civil legislation 8 May 1996, No. 15 Law on Technical Legal basis for establishing technical regulations 22 May 2004, No. 67 Regulations
Source: Compiled by the Secretariat from information from the Kyrgyz authorities.
2.2.2 Ministry and private-sector involvement in trade policy
2.2.2.1 Government trade policy framework
2.7. The Ministry of Economy is the central body in the executive given authority for the functions of state policy on tariffs, licensing, investment, and foreign trade.3 It is guided by the Constitution, normative legal acts, international law, and treaties that have entered into force for the Kyrgyz Republic. Several decrees and regulations of the Kyrgyz Republic have established an inter- departmental commission on the WTO in which various ministries and other state bodies have a role in developing WTO-related policy and overseeing obligations (Chart 2.1).
Chart 2.1 Main bodies involved in trade policy formulation and implementation
Prime Minister
First Deputy Prime Minister
Ministry of Ministry of Ministry of Ministry of Ministry of Ministry of Ministry of Ministry of Agriculture Foreign Culture and Transport and Health Energy Economy Finance and Land Affairs Tourism Communications Reclamation
Interdepartmental State Tax Commission on WTO Service National Bank
State Customs Service
Source: Information provided by the Kyrgyz authorities.
3 Kyrgyz Decree of 4 June 2013, No. 312.
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2.2.2.1.1 WTO inter-departmental Commission
2.8. The WTO inter-departmental Commission was created in 1999 to coordinate WTO multilateral trade issues. In particular, it sets out the distribution and responsibilities of the ministries and other government bodies with respect to the WTO Agreements.4 The Ministry of Economy is given the primary role in coordinating the commission and has the most responsibilities for ensuring compliance with WTO obligations under the GATT and GATS. Several other ministries are given direct responsibilities over certain agreements or provisions. For example, the Ministry of Agriculture and Land Reclamation has responsibility for the provisions of the WTO Agreement on Agriculture. The inter-departmental Commission meets as needed, typically about five times per year. The government bodies are represented at the level of minister, deputy minister, or head of department. Certain representatives from the private sector or civil society, i.e. Chamber of Commerce, may also be invited to attend sessions of the Commission.5
2.2.2.1.2 Ministry of Economy
2.9. Due to many government reforms and re-structuring in recent years, there have been several changes to the ministries. Since the last review, the Ministry of Industry, Trade, and Tourism has changed four times. In 2007 it was Ministry of Economic Development and Trade, in 2009, the Ministry of Economic Regulation, in 2011, the Ministry of Economy and Anti-trust Policy, and in 2012, it became the current Ministry of Economy.
2.10. The Ministry of Economy is the principal ministry involved in trade policy matters and takes the lead role in WTO multilateral trade policy. Its functions include development and implementation of public policy in the areas of anti-monopoly, tariffs, licensing, investment, and foreign economic and fiscal policy, with the aim of creating a favorable environment for business and entrepreneurship. It has other roles in state material reserves, economic and regional development, state property and mineral resources management, technical regulation and metrology, and the development of free economic zones.
2.2.2.2 Involvement of the private sector in trade policy
2.11. The Kyrgyz Republic has 41 public sector advisory councils that work with various ministries and departments. Their advisory or supervisory function is to allow the private sector to interact with the Government and to promote transparency. They comprise persons from civil society, academia, business, and non-government entities. The councils for the ministries and bodies involved in trade play important roles in the formulation of tariff, non-tariff, investment, and other policies.
2.12. The public supervisory council under the State Customs Service was established in December 2010 to involve civil society in customs matters and increase transparency.6 The main functions of the council are to promote and discuss public initiatives, implement public monitoring and effective implementation of decisions, assess the effectiveness of public services, and implement public control, efficiency, and transparency over budgetary funds and special donor accounts.
2.13. The Ministry of Economy's public supervisory council was established in 2011 to allow the Ministry to take into account public opinion in developing its policies.7 The council has a role in discussing initiatives, assisting in finding solutions, promoting transparency and efficiencies, and promoting public opinion.
2.14. The Investments Council was established by a resolution of the Government in 2010 in order to have a unified state policy on improving the business environment and investment situation (see section 2.6).8
4 Kyrgyz Decree of 23 June 2003, No. 374. 5 Kyrgyz Decree of 23 June 2003, No. 374. 6 Kyrgyz Decree of 1 December 2010, No. 5-16/420. 7 Kyrgyz Decree of 13 June 2011, No. 102. 8 Kyrgyz Resolution of 5 August 2010, No. 149.
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2.15. The Chamber of Commerce and Industry of the Kyrgyz Republic represents business interests to the government, participates on the public advisory councils, and otherwise facilitates the development of the Kyrgyz economy. It also has a direct role in issuing certificates of origin (section 3.2.1). It may be invited to participate in the inter-departmental commission.
2.3 Trade Policy Objectives
2.3.1 General objectives
2.16. The Kyrgyz Republic does not follow one particular trade policy or objective; rather it pursues a multi-faceted approach depending on its interests. In this respect, it has pursued bilateral, regional, and multilateral trade initiatives in recent years and expects to continue to do so in the future.
2.17. Certain specific trade policy objectives for 2013-17 are set out in the Kyrgyz Republic’s National Sustainable Development Strategy. In particular, the strategy recognizes the trade deficit and the weakening export capacity in recent years, and aims to reverse these trends through an export development strategy and by promoting the export of services. Export growth is also to be supported by the development of the transport infrastructure, marketing and information support for export-oriented enterprises, and implementation of the one-stop-shop for obtaining clearance documentation.
2.18. The strategy emphasises the importance of completing the necessary procedures to accede to the CIS Customs Union and Single Economic Space (also known as the Common Economic Space) in order to expand foreign trade and improve cooperation. In particular it notes the high volumes of trade with these countries and the high level of integration among Customs Union members. Acceding to the customs union is a priority as it would create new opportunities as a result of the duty-free movement of goods and the free flow of capital, services, and labour. In 2013, the Kyrgyz Republic expects to reach agreement with Customs Union members on sensitive and preferential commodity groups in order to protect its national interests.
2.3.2 Sectoral objectives
2.19. Certain sectors have been identified in various strategies for further trade development objectives. The National Sustainable Development Strategy provides for the development of the textiles and clothing industry through the creation of the Textile and Garments Industry Technopolis project. This provides for the investment of US$33.4 million during 2014-15 to improve manufacturing, logistics, and infrastructure, as this is an important export-oriented industry for the country. The agri-products sector is also identified for similar initiatives. Construction of infrastructure and creation of logistical support to facilitate agri-product exports to the customs union is planned for 2013-14.
2.20. The National Export Strategy also contains policy objectives for certain industries. In order to boost exports, it has targeted six sectors (clothing, tourism, raw and processed fruits and vegetables, raw and processed meat, bottled water, and dairy products) for export growth and development. Specific strategies for each sector contain numerous provisions, such as improving access to finance, introducing trade facilitating measures, and improving the SPS infrastructure (see section 3.2.7).
2.4 Trade Agreements and Arrangements
2.4.1 Participation in the WTO
2.21. After gaining independence from the former Soviet Union, the Kyrgyz began a process of opening borders and trade, as well as its accession process to the WTO. It was one the first countries from the region, and the first CIS country to accede in 1998 with a very open trade regime. The Kyrgyz Republic bound all tariffs in its accession process and liberalized many sectors by participating in most of the Uruguay sectorial initiatives, 138 services subsectors, the Information Technology Agreement, and agreeing to join the Government Procurement Agreement.
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2.22. The Kyrgyz Republic has submitted proposals in the Doha negotiations, participated in the work of committees and the monitoring exercise, and has been active in development and aid-for- trade areas. It has not yet used the WTO dispute settlement mechanism, nor has it initiated any anti-dumping or countervailing duty investigations. Most recently, in July 2013, it notified the initiation of a safeguard investigation on wheat flour.9
2.23. During 2006-12, the Kyrgyz Republic made five proposals to negotiating bodies, in agricultural and NAMA issues concerning recently acceded Members. While the Kyrgyz Republic made many notifications during the period under review (Table A2.1), notifications remain outstanding or in need of update in a number of areas, e.g. import licensing, QRs, safeguards, and rules of origin.
2.4.2 Regional, bilateral, and preferential trade
2.4.2.1 Overview
2.24. The Kyrgyz Republic's trade with its neighbouring CIS partners is an important part of its trade relations. Based on historical trade ties, shared culture and language, as well as a large diaspora population of Kyrgyz people in these countries, trade with the CIS accounts for about half of all Kyrgyz trade (Chart 2.2). While imports have become somewhat more diversified since 2007, exports have been more concentrated in these traditional markets, accounting for 52.4% of total exports in 2012. The origin of most CIS imports is the Russian Federation, while the majority of exports are destined for Kazakhstan.
9 WTO Document G/SG/N/6/KGZ/4.
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Chart 2.2 Preferential trade, 2007 and 2012
2007 2012
Imports
LDC LDC 0.05% 0.02%
CIS Russian CIS 63.0% Federation 49.9% Russian 40.4% Federation 33.2%
MFN 36.9% MFN 50.1%
Kazakhstan Kazakhstan 13.0% 9.7%
Uzbekistan 5.0% Belarus 3.0% Other CIS 4.6% Other CIS 4.0%
Exports
Russian CIS Russian CIS Federation 50.0% Federation 52.4% 13.0% 20.7%
MFN MFN 50.0% 47.6% Kazakhstan Kazakhstan 24.1% 18.0%
Uzbekistan Uzbekistan 11.3% 7.6%
Other CIS Other CIS 3.7% 4.0%
Source: Data provided by the authorities of the Kyrgyz Republic.
2.4.2.2 Free-trade agreements
2.25. The establishment of bilateral or regional free-trade agreements has been part of the Kyrgyz Republic's trade policy since shortly after its establishment in 1991. All of its free-trade agreements involve countries of the region and build upon long-established trade and economic ties, in particular with the creation of the CIS in the early 1990s (Table 2.2).
2.26. Imports of goods from free-trade partners are duty free, if originating, and generally export duties may or may not be applied to these countries. The free-trade agreements cover trade in
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Table 2.2 Free-trade agreements or regimes
Partner Type of arrangement Date Russia Free trade agreement 8 October 1992 Kazakhstan Free trade agreement 22 June 1995 Uzbekistan Free trade agreement 24 December 1996 Azerbaijan Free trade agreement 12 January 2004 Armenia Free trade agreement 4 July 1994 Moldova Free trade agreement 26 May 1995 Ukraine Free trade agreement 26 May 1995 Belarus Free trade agreement 30 March 1999 Tajikistan Free trade agreement 19 January 2000 Turkmenistan Free trade regime 29 March 2006
Source: Information provided by Kyrgyz authorities.
2.4.2.3 Eurasian Economic Community
2.27. The agreement on the establishment of the Eurasian Economic Community was signed by five countries in 200011 in order to build closer trade and economic ties, leading to the establishment of a customs union. It has achieved a high level of integration on a number of trade issues, including a common tariff nomenclature. The Eurasian Economic Community is a priority area for cooperation and deeper integration for the Kyrgyz Republic, especially as regards international transport corridors, creation of a common energy market, energy transportation, mutual investments in the industrial sector, and labour migration issues.
2.28. In March 2012 a meeting of the Inter-State Council of the Eurasian Economic Community was held in Moscow City, where progress was made regarding re-organization of the community and plans for transition to a new mechanism of integration and cooperation were discussed. A major focus was toward establishing the Eurasian Economic Union, which is envisioned for 2015, with work ongoing on the draft agreement.
2.4.2.4 Customs Union
2.29. In 2011, the Kyrgyz Republic declared its intention to join the treaty on the Commonwealth of Independent States Free Trade Area (also known as the Customs Union (CU) and now, the Single Economic Space). It currently comprises Belarus, Kazakhstan, and Russia as full members applying the common external tariff (CET). An Inter-Ministry Commission has been established by the Kyrgyz government to coordinate the positions and activities of the various ministries, departments, and local authorities, and to negotiate on behalf of the Kyrgyz Republic.
2.30. The accession process of the Kyrgyz Republic was confirmed by the authoritative body of the Customs Union in 2011.12 In 2012, a working group was established to conduct negotiations with the Kyrgyz Republic on accession to the Customs Union. The working group adopted a joint plan of action in order to prepare and adopt the roadmap for accession by the end of 2013. The roadmap includes consideration of adapting normative and legal acts on sanitary, phyto-sanitary, veterinary, customs, technical, and financial issues.
2.31. Several studies and assessments of the economic and legal impact of the Kyrgyz Republic joining the Customs Union, have noted that it would have a major impact on the country's foreign
10 WT/REG114/N/1, WT/REG81/N/1, WT/REG76/N/1, WT/REG73/N/1, WT/REG74/N/1, and WT/REG75/N/1. 11 Republic of Belarus; Republic of Kazakhstan; Kyrgyz Republic; Russian Federation, and Republic of Tajikistan. 12 Meeting of Eurasian Economic Community on 19 October 2011 in St. Petersburg.
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- 25 - trade and trade policy.13 Trade with the Customs Union countries is significant, accounting for about half of Kyrgyz trade, and has generally been growing in recent years.
2.32. Joining the Customs Union would have a significant trade policy impact on the Kyrgyz Republic. Accession would require adherence to the entire legal framework of the CU, unification of the national legislation on the regulation of foreign trade and bringing it into compliance, and consideration of changes or amendments to bilateral and multilateral agreements related to foreign trade, economic, and customs activities. From a WTO perspective, a significant aspect would be the harmonization of the Kyrgyz tariffs with those of the Customs Union, which would raise current low-tariff levels to the relatively high-tariff system that currently exists for the Customs Union. The average rate of duty for the customs union is 10.5% while that of the Kyrgyz Republic is 5%.14 According to the study by the Eurasian Development Bank:
• 30% of Kyrgyz duties align with those of the customs union, and thus would not need to be changed; • 21% can be re-aligned with those of the customs union without violating WTO commitments; but • Nearly 50% do not align and would require re-negotiations and compensation to WTO Members. 2.33. Significant tariff differences exist for meat and prepared meat products, alcoholic beverages, certain chemical products, wood and paper, iron and steel, aluminium, and furniture; whereby the average tariff rates of the customs union exceed those of the Kyrgyz Republic by 10% or more. At present, the Kyrgyz Republic has not invoked Article XXVIII or Article XXIV procedures to re-negotiate its WTO tariff commitments, and it is unclear how compensation could be given for such a large number of tariff lines with significant tariff differences. However, it is foreseen that with the accession of Kazakhstan and Belarus to the WTO, the Customs Union CET would be lowered, and thus the impact on Kyrgyz tariffs would be lessened.
2.34. Adherence to the CU would also involve other substantive changes in the trade policy of the Kyrgyz Republic, with a significant impact on its economy. The cancellation of the "simplified" import procedure would likely have a negative impact on Kyrgyz's role as a re-exporter of third-party goods. Strengthened customs controls, adherence to a unified system of tariff preferences, and intra-customs-union production and investment integration are likely to have an important impact also.
2.4.3 Preferential regimes
2.35. The Customs Tariff Law provides for preferential tariff treatment to certain countries.15 It grants zero duties for all products from 46 least-developed countries.16 Imports from these countries are very small, amounting to only 0.02% of total imports in 2012 (Chart 2.2).
2.36. The Kyrgyz Republic has not requested to join the WTO waiver of the provisions of Paragraph 1 of Article I of GATT 1994 for developing countries to grant preferences to least-developed countries.17 The Kyrgyz Republic grants these preferences to certain countries that are no longer designated as least developed countries by the UN.
13 Eurasian Development Bank (2012); USAID/The Services Group/AECOM (2010a) and ( 2010b). 14 Eurasian Development Bank (2012); USAID/The Services Group/AECOM (2010a) and ( 2010b). 15 Law on the Customs Tariff of the Kyrgyz Republic, 29 March 2006, No. 81. 16 Afghanistan; Bangladesh; Benin; Bhutan; Botswana; Burkina Faso; Burundi; Cambodia; Cape Verde; Central African Republic; Chad; Comoros; Dem. Rep. of Congo; Djibouti; Equatorial Guinea; Ethiopia; Gambia; Guinea; Guinea-Bissau; Haiti; Kiribati; Laos; Lesotho; Liberia; Mauritania; Madagascar; Malawi; Mali; Maldives; Mozambique; Myanmar; Nepal; Niger; Rwanda; Sao Tome and Principe; Solomon Islands; Somalia; Sudan; Sierra Leone; Tanzania; Tuvalu; Uganda; Vanuatu; Western Samoa; Yemen, and Zambia. 17 WTO Documents WT/L/304 and WT/L/759.
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2.5 Trade Disputes and Consultations
2.5.1 Dispute settlement in the WTO
2.37. The Kyrgyz Republic has not used the WTO dispute settlement procedures to date either as a complainant or third party. According to the authorities, this is mainly because there have not been many trade tensions with WTO Members, and trade issues with the CIS countries are generally settled within the CIS framework.
2.5.2 Regional or bilateral dispute systems
2.38. The CIS has a mechanism to settle disputes. Potential disputes are often settled through an intergovernmental commission. Disputes may also be settled through the Eurasian Economic Community framework.
2.6 Foreign Investment Regime
2.39. The Kyrgyz Republic has placed a high priority on attracting foreign direct investment in recent years. It has established an Investment Council to aid in business outreach and has reviewed policies and laws to make investment in the Kyrgyz Republic more attractive. As a result, foreign investment has generally increased from 2006-07 levels, mostly in the processing, real estate, and services sectors, although it declined slightly in 2012. The Kyrgyz Republic has also ranked among the top 20 economies for highest inward FDI rates of return, according to UNCTAD. However, FDI into the Kyrgyz Republic remains low overall, especially compared with its neighbours in central Asia.18
2.6.1 Legal framework
2.40. Laws and related regulations on investment were put in place to create an open investment regime and give certain guarantees to investors (Table 2.3) The Law on Investments provides the main framework for investments.19 According to the authorities, it sets out all the main elements for facilitating investment. Its main elements are:
• National treatment and non-discrimination for foreign investors; • Guarantees against nationalisation and expropriation; • Repatriation of profits; • Freedom of foreign exchange; • Certain legal guarantees; • Basic investor's rights; • Employment of foreign workers; and, • Arbitration in the case of disputes.
Table 2.3 Main laws governing investment in the Kyrgyz Republic
Law or legal act Reference Information Law on Investments Law of 27 March 2003, No. 66 Establishes basic principles of state investment policy aimed at improving the investment climate and attracting domestic and foreign investment through a fair and equal legal regime for investors and guarantees of protection of the investments Law on Public-Private Partnership Law of 22 February 2012, No. 7 Provides a framework for attracting investments for infrastructure projects Law on Introducing a Visa-free Law of 21 July 2012, No. 121 Provides visa-free travel for certain Regime for citizens from some persons for 60 days countries for 60 days
18 UNCTAD, 2013 World Investment Report. 19 Kyrgyz Law of 27 March 2003, No. 66.
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Law or legal act Reference Information Law on Subsoil Law of 9 August 2012, No. 160 Regulates relations between the State and individuals and legal entities, as well as with other states, in connection with the use of subsoil
Source: Information provided by the Kyrgyz authorities.
2.41. While the Law on Investments provides the basic framework, other laws, such as the Tax Code, various business laws, the Free Economic Zones Law, etc. may have elements that provide security or other provisions to investors, but in and of themselves are not investment legislation.
2.42. Pursuant to a 2010 government resolution, the Council on Business and Investments (Investments Council) was established to provide a unified state policy on attracting investments and improving the business and investment situation.20 The Council is chaired by the President of the Kyrgyz Republic and its members include the first Vice-Minister, the Minister of Economy, two representatives from international development partners, and persons from business associations. The Council is tasked with improving the business environment and investment situation, reforming the state management system and regulatory functions, and defining a strategy and priorities to attract investment.
2.6.2 Public Investment Programme (PIP)
2.43. The PIP is the main instrument for managing public sector investments. These are long- term infrastructure and investment projects undertaken by the Government with financial support from international financial institutions and the donor community.21 They generally take the form of concessional loans or donor funds. The Government develops annual programmes to prioritize the development of main infrastructure facilities, such as roads, energy projects, etc. The Law on Public-Private Partnerships defines the role of the State and the private sector in such projects. It was revised in 2012, as the 2009 law was reportedly ineffective.22
2.44. The National Sustainable Development Policy (2013-17) points out that there is still inadequate selection and control over the PIP projects and proposes that it be reduced and re- focused to support only strategically important national infrastructure projects. Other proposed reforms of the PIP include development of new regulations, regular monitoring, and increasing the use of local construction companies in PIP projects to reduce the share of imported goods and services.
2.6.3 Investment policy
2.45. During 2007-13, a number of country development strategies addressed investment issues. The 2007-10 strategy identified a number of issues that needed to be resolved in order to improve the investment climate, and various ways to address them. The issues included poor tax administration, unpredictable changes in economic policy, high level of corruption, high cost of financing, economic instability, foreign trade regulations, criminality and the court system. The 2009-11 strategy included provisions to attract private investors by eliminating administrative barriers, creating favourable customs and tax regimes, and strengthening trust and sustainability of the financial system.
2.46. The National Sustainable Development Policy sets out an investment policy for 2013-17. It includes the establishment of a development bank and specialized investment funds; an institution to assess investment opportunities and select priority projects; tax, administrative, and regulatory measures to attract the savings of migrant workers; and reduction of the PIP programme.
20 Kyrgyz Resolution of 5 August 2010, No. 149. 21 These include, inter alia, World Bank, Asian Development Bank, Islamic Development Bank, European Bank for Reconstruction and Development, and bilateral donor countries and programmes. 22 TRACECA (undated).
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2.6.4 Bilateral invest agreements (BIAs) and other initiatives
2.47. The investment framework is aided by bilateral investment agreements with a number of partners. To date, 28 have been negotiated, but not all have entered into force (Table 2.4). An investment promotion framework under the auspices of the Eurasian Economic Community, serves to promote investment among neighbouring Community members.
2.48. BIAs are an important element for the expansion of bilateral economic links and further integration into the world economy. They promote direct investment into the economy by protecting investors’ rights and giving certain guarantees. The BIAs are developed on the basis of a common template or model agreement.23 The model template contains 10 articles and has provisions on, inter alia, the promotion of investments, protection of investments, free transfer of payments, expropriation and compensation, subrogation, disputes.
Table 2.4 Bilateral investment agreements
Agreement Date of signature Date of entry into force Armenia 4 July 1994 26 November 1995 Azerbaijan 23 April 1997 27 August 1997 Belarus 30 March 1999 11 November 2001 China 14 May 1992 9 September 1995 Eurasian Economic Community 12 December 2008 .. Finland 3 April 2003 8 December 2004 France 2 June 1994 10 August 1997 Georgia 22 April 1997 28 October1997 Germany 28 August 1997 16 April 2006 India 16 May 1997 12 May 2000 Indonesia 18 July 1995 23 April 1997 Iran, Islamic Republic 31 July 1996 27 July 2005 Kazakhstan 8 April 1997 .. Korea, Republic of 19 November 2007 Not yet in force Latvia 22 May 2008 Not yet in force Lithuania 15 May 2008 Not yet in force Malaysia 20 July 1995 Not yet in force Moldova, Republic 7 November 2002 16 November 2004 Mongolia 4 December 1999 Not yet in force Pakistan 26 August 1995 Not yet in force Sweden 8 March 2002 1 April 2003 Switzerland 29 January 1999 17 April 2003 Tajikistan 19 January 2000 7 December 2001 Turkey 28 April 1992 31 October 1996 Ukraine 23 February 1993 Not yet in force United Kingdom 8 December 1994 18 June 1998 United States 19 January 1993 12 December 1994 Uzbekistan 24 December 1996 6 February 1997
.. Not available. Source: Information provided by the Kyrgyz authorities.
23 Resolution of the Kyrgyz Republic, "On model agreement between the Government of the Kyrgyz Republic and the Government of another state on stimulation and protection of investments", 22 November 2004, No. 739-р.
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3 TRADE POLICIES AND PRACTICES BY MEASURE
3.1 Measures Directly Affecting Imports
3.1.1 Customs procedures
3.1.1.1 Customs legal framework and Customs Code
3.1. Since 1992 the Customs Code has provided the overall architecture for customs rules and regulations for the Kyrgyz Republic. A second revision of the code was enacted in 1997, followed by the most recent version passed by the Government in July 2004.
3.2. The Code contains 14 Sections, 61 chapters, and 399 articles. It provides for the customs regulatory framework, for a wide-range of customs matters (Table 3.1).1
Table 3.1 Overview of the Customs Code
Section Title Overview I. General provisions Customs regulations and basic principles II. Country of origin of the goods. Commodity Country of origin and commodity nomenclature nomenclature. Foreign economic activity III. Preliminary and other customs procedures Arrival of goods, internal transit, and temporary storage IV. Customs regimes Procedures, release of goods, re-imports, temporary import/export, customs warehouses, destruction, and processing under customs control V. Special customs procedures Transport vehicles, movement of goods by other means VI. Customs payments Calculation of duties and taxes, custom fees, terms of payment, and refunds VII. Customs clearance Declaring and release of goods; customs brokers VIII. Customs supervision (control) Form and order of customs control IX. Protection of Intellectual Property Rights Clearance and control of goods containing intellectual property X. Customs statistics, information systems, Customs statistics and information systems for and information technology customs XI. Customs organization The authorities and their duties and powers XII. Disposal of goods and transport vehicles Control over the goods and their transport XIII. Information and advice in the field of Information, advice, and preliminary decisions Customs XIV. Appeal against and examination of Procedures for appeals against decisions or actions decisions, activities, or actions of the by Customs Customs
Source: Law of the Kyrgyz Republic, 12 July 2004, N 88. Online information viewed at: http://www.customs.kg/index.php/ru/custzak/posgov.
3.3. The 2004 Customs Code was built upon the framework of the previous code. It enacted to strengthen a number of areas and to align with principles of the WCO’s Revised Kyoto Convention (International Convention on the Simplification and Harmonization of Customs Procedures), in particular to: (i) increase predictability and transparency; (ii) introduce a system of risk management and audit methods, including simplified procedures for low-risk traders; (iii) deploy an electronic database and electronic submission of documents; (iv) apply information systems and technologies in the customs procedures; and (v) to make information available to concerned parties.2 Consideration was also given to harmonizing the code with those of Russia and Kazakhstan, in order to unify the customs regulatory framework of the Eurasian Economic Community and Commonwealth of Independent States.
1 Law of the Kyrgyz Republic, 12 July 2004, No. 88. Viewed at: http://www.customs.kg/index.php/ ru/custzak/posgov. 2 Speech of the Chairman of the Revenues Committee under the Ministry of Finance of the Kyrgyz Republic, Mr. Malabekov Zamir, regarding updated Customs Code of the Kyrgyz Republic; and ESCAP Country Studies, Kyrgyzstan, Part Two. Viewed at: http://www.carecprogram.org/uploads/events/2004/Customs- Reforms-Conference/Country-Report-KGZ-Customs-Code.pdf.
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3.4. A number of further changes have been made to the Customs Code in the last few years to simplify and streamline administrative procedures in order to improve the conditions for trade. In particular, changes were introduced to automate accounting and control of movement of goods, use of the "single window" information system, remove potential conflicts between certain articles, simplify the permit system, and change the payment terms and interest on customs duties.
3.1.1.2 International, regional, and bilateral agreements and cooperation on customs
3.5. The Kyrgyz Republic has engaged in international, regional, and bilateral customs co- operation. It joined the World Customs Organization (WCO) in 2000, and acceded to the WCO's Customs Convention on Containers in October 2007.3 It is not a party to the WCO's revised Kyoto Convention on the simplification and harmonization of customs procedures, or any other WCO conventions or agreements on customs, except for the Harmonized System Convention (see section 3.1.2).
3.6. The Kyrgyz Republic is engaged in varying degrees of cooperation with a number of regional groups or trade areas (Table 3.2). It follows decisions and practices of the Eurasian Economic Community in which there are approximately 30 instruments regulating customs matters among members. In the context of the CIS, around 150 instruments govern customs matters for countries of the region. While there is some harmonization of customs practices and procedures among CIS members as a result of Eurasian Economic Community decisions, they are not uniform across trading partners. Closest cooperation on filing systems, records, etc. has reportedly been achieved with Kazakhstan.
Table 3.2 Bilateral and regional agreements on cooperation on customs matters
Partner Reference Main elements Kazakhstan Protocol of 2 April 2008 Information exchange Shanghai Cooperation Organization Protocol of 30 October 2008 Exchange of information on the (China, Russia, Kazakhstan, movement of energy products Uzbekistan, Tajikistan) CIS Protocol of 21 November Exchange of advance information on 2008 goods and means of transport Russian Federation Protocol of 9 October 2009, Exchange of information and Amendment signed 23 April 2013 Economic Co-operation 2006 Agreements on the establishment of a Organization (ECO) (Turkey, Iran, data bank and mutual administrative Pakistan, Afghanistan, Azerbaijan, assistance on customs matters Kazakhstan, Turkmenistan, Tajikistan, Uzbekistan) Central Asia Regional Economic Co- .. Two international agreements on operation CAREC (Azerbaijan, customs matters China, Kazakhstan, Tajikistan, Uzbekistan, Mongolia) Russian Federation Protocol of 5 March 2009 Information on customs clearance and control Russian Federation Protocol of 22 June 2012 Customs clearance and control Russian Federation Protocol of 23 April 2013 Simplification of customs operations and control
3 Law of the Kyrgyz Republic, 6 January 1997, N 7; World Customs Organization online information, "Membership". Viewed at: http://www.wcoomd.org/en/about-us/wco-members/~/media/WCO/Public/Global/ PDF/About%20us/WCO%20Members/List%20of%20Members%20with%20membership%20date.ashx; and "Position as Regards Signatures, Ratifications and Accessions, Customs Convention on Containers, 1972". Viewed at: http://www.wcoomd.org/en/about-us/legal-instruments/~/media/BE67F8B502DB491D97B386C AB0C21EC2.ashx.
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Partner Reference Main elements Tajikistan Protocol of 27 May 2013 Information exchange on movement of goods in two-way trade Uzbekistan Protocol of 11 June 2013 Information exchange on goods and means of transport
.. Not available.
Source: Information provided by the Kyrgyz authorities.
3.1.1.3 Developments on trade facilitating measures
3.7. During the period under review, the Kyrgyz Republic initiated a number of customs reforms aimed at facilitating trade, often with the help of international donors.4 A project on the "single window" was initiated in 2007; a project on "paperless trade" commenced in 2008, and work on a uniform information system was also developed during the period. As a result, customs procedures have been streamlined and the number of required documents has been reduced. Although efficiencies have improved, these projects are still in the initial phases and are still being developed and implemented.
3.8. The "single window" project operates as a state enterprise under the Ministry of Economy and is financed through the state budget and international donors. In 2009 the Single Window Center for foreign trade was established, and in 2011 the first stage of its introduction-project commenced. A Single Window in Foreign Trade Information System (SWIS), developed and launched under the project is to facilitate and accelerate obtaining permits for foreign trade operations. Work is ongoing to ensure interaction between the Customs and SWIS information systems to facilitate transmission and processing of data required for customs procedures. Currently, the project incorporates 4 of 19 ministries, and includes around 600 required permits and 3,000 users. It is currently a voluntary programme for importers and exporters.
3.9. The "paperless trade" initiative is near completion and provides for the uniform electronic submission of customs documentation. It is fully implemented in some 50% of customs posts; it is not available in a number of customs posts in the south of the country.
3.10. The Kyrgyz Republic passed legislation in February 2012 on establishing risk-assessment criteria for customs.5 The risk-assessment process assigns points or scores of three levels (5, 10, or 15), for six criteria. The six criteria are: the volume of imports; country of origin; classification in the Harmonized System; amount of customs duty exemptions; mode of transport; and previous violations of customs laws. According to the authorities, the risk-assessment procedures are not yet fully operational, although the legislation and related regulations are in place.6 Some aspects are in place, such as the risk criterion, but significant work remains. Thus, physical inspection of merchandise is still the norm in most customs ports.
3.11. Work commenced in 2005, under the auspices of the Asian Development Bank to modernize customs, improve efficiencies, and promote regional cooperation on customs matters. One of the most important components of this work was the development of a unified automated information system for the Customs service. Development of the specific software commenced in 2010, followed by development of requirements and testing/refining of the software during 2011-12. Pilot testing of the software began in late 2012, and deployment and training are continuing. While the large database is capable of creating the conditions for electronic customs processing, work and refinements are ongoing.
3.12. In order to streamline the customs control of goods conveyed by individuals at the border, the Kyrgyz Republic introduced the "double corridor" system in 2013, which allows individuals to choose the green or red corridor for customs clearance.7
4 There were at least 11 such projects outlined as part of Kyrgyzstan's Aid-for-Trade Needs Assessment exercise. UNDP (2010). 5 Law of the Kyrgyz Republic, 18 February 2012, No. 108. 6 Regulation of 18 February 2012, No. 108. 7 Kyrgyz Government Resolution, 12 February 2013, No. 69.
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3.1.1.4 Simplified import procedures
3.13. Since 2004, the Kyrgyz Republic has special legislation (simplified customs procedures) for the movement of goods and vehicles across the border by physical persons for personal use, not for business production.8 Clearance of the goods is carried out in a simplified, privileged manner to further streamline the procedure of moving goods and vehicles across the border. The volume and type of trade entering through these procedures has varied significantly over the years, mostly as a result of changes in the list of eligible goods. As of 2013, the main products still eligible for this procedure were textiles and clothing (Table 3.3). Nevertheless, imports under the simplified procedures are significant, amounting to 10% of total imports over the period.
Table 3.3 Overview of imports under simplified procedures, 2007-12 (US$ thousand) 2007 2008 2009 2010 2011 2012 Plastics, chemicals, minerals 11,364 11,706 10,021 13,425 2,425 n.a. Hides, skins, leather 2,020 3,475 3,087 2,629 4,118 6,492 Wood & paper 3,355 3,973 6,525 5,502 575 n.a. Textiles & clothing 143,267 195,216 131,960 124,743 139,035 202,198 Footwear, headwear 47,067 55,242 48,610 27,640 33,201 61,508 Ceramics, minerals, metals 6,817 5,876 3,775 8,771 1,737 n.a. Machinery & electronics 4,312 2,406 2,422 4,095 1,934 n.a. Motor vehicles and parts 104,343 465,009 124,751 121,908 259,120 361,360 Other 601 2,020 509 n.a. n.a. n.a. Total imports under simplified 322,998 743,056 331,150 308,712 442,146 631,559 procedures Share of total imports (%) 13.4 18.2 10.9 9.6 10.4 11.8 n.a. Not applicable (no imports during the period). Source: Information provided by Kyrgyz authorities.
3.14. A key provision of this legislation for the movement of commercial goods by physical persons is that the products are not subject to normal tariffs, nor is there a need to classify the goods by tariff number, rather a uniform customs charge is assessed based on the weight of the good. A fee of US$0.35 for transport by rail or auto, or US$1.00 for air transport, is charged per kg. Reportedly, a significant amount of this trade is imported into the Kyrgyz Republic from China sold in its two main bazaars, and often further sold or distributed to neighboring CIS countries.9 The threshold for use of this procedure is som 4 million.
3.1.1.5 Free economic zones
3.15. Free or special economic zones are part of the customs framework legislation. The law dates from 1992 and has been amended nine times, most recently in 2011.10 The economic zones offer special custom privileges to companies manufacturing products in the zone for both import and export. Currently five free economic zones are provided for in the legislation and regulations, in border regions Naryn, Karakol, Bishkek, Lalick, and Majmak. However, for various reasons, there has been a general decline in the use of free economic zones, and currently only Bishkek has any substantial activities. During the period under review, three zones had trade activities, with Bishkek the major player. Despite the decline of the other zones, trade to and from the zones, amounted to 14% of total exports in 2012 (Table 3.4).
3.16. The free economic zones are special legal regimes, providing benefits for foreign trade and economic activity. They allow for the free flow of foreign currency and tax advantages. Entities operating in the zones may import, store, produce, or sell goods in the territory of the free economic zone without paying taxes or customs duties, and they are exempt from non-tariff measures. Furthermore, the entities may sell goods from the economic zone to the domestic Kyrgyz market if the product has undergone significant processing in the zone (section 3.1.3.3). Certain products may not be eligible for importation to the domestic market.
8 Chapter 28 of the Customs Code and Kyrgyz Government Decree, 31 December 2004, No. 976 and its six amendments. 9 USAID (2010a). 10 Kyrgyz Law, 16 December 1992, No. 1076-XII.
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Table 3.4 Free economic zone trade, 2007, 2010, and 2012 (US$ thousand) 2007 2010 2012 Free Economic Zone Imports Exports Imports Exports Imports Exports Bishkek 121.7 141.5 79.7 98.8 191.1 234.6 Karakol 3.7 1.2 0 2.3 0 0 Naryn 1.4 0.9 0.3 0.7 1.0 1.3 Total free trade zone trade 126.8 143.6 80.0 101.8 192.1 235.9 Share of total trade (in %) 5.3 12.7 2.5 5.8 3.6 14.0
Source: Information provided by the Kyrgyz authorities.
3.17. Work is under way to draft new laws and regulations for the zones, as the current legislation is in need of reform. The authorities have cited financial and infrastructure problems as causing the decline of the zones in remote regions, and the new initiative would address these deficiencies.
3.1.1.6 Customs brokers
3.18. The Kyrgyz Republic allows merchandise clearance through customs brokers. Legislation for the regulation of customs brokers is contained in Chapter 42 of the Customs Code and a separate Decree.11 A customs broker must be an individual person resident in the Kyrgyz Republic and acquire a licence from the State Customs Service. The licensing qualifications further require Kyrgyz citizenship, secondary special or higher education, and passaging an exam. A roster of registered customs brokers is published at least every three months. The legislation also prescribes the activities, rights, and responsibilities of customs brokers; support activities; procedures for accounting and reporting of transactions; and the relationship between customs brokers and the represented entity.
3.1.1.7 Pre-shipment inspection
3.19. The Kyrgyz Republic notified the WTO in 2001 that it did not have any laws or regulations related to pre-shipment inspection.12 There have been no changes since that time, and the Kyrgyz Republic does not use pre-shipment inspection companies for customs matters.
3.1.1.8 Other customs matters
3.20. Pursuant to a memorandum of understanding with the United States, the Kyrgyz Republic approved regulations on radiation control at certain customs borders.13 This was instituted in order to prevent the illicit trafficking of nuclear and radioactive materials. The customs service has implemented radiation control at six border crossings.
3.21. The Customs Service Development Strategy, 2011 to 2013, and a related Strategy Implementation Action Plan provide for the optimization of customs procedures and infrastructure, improvement in the structure of the customs service, prompt customs legislation, and for the provision of high quality human resources. For 2012, the ten major areas of focus included procedures, infrastructure, rates, human resource policy, overall structure, information system maintenance and support, interagency interaction, interaction with the public and businesses, international customs cooperation, and socio-cultural activities.
3.1.2 Customs valuation
3.1.2.1 Overview of basic rules
3.22. The rules for determining the value of goods for customs purposes are contained in the Customs Code and in a Regulation of the Kyrgyz Government giving instructions on the method of determining the customs value of imported goods.14 While in some cases the Decree may contain the exact same language of the Code, it goes in to more practical details of how to apply the
11 Decree of the Kyrgyz Republic, 28 December 2004, No. 961. 12 G/PSI/N/1/Rev.1. 13 Kyrgyz Government Resolution, 26 October 2011, No. 674. 14 Kyrgyz Government Decree of 28 December 2004, No. 961.
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provisions to determine the value of goods (Table 3.5). The Code and the Regulation have been amended twice.15
Table 3.5 Overview of customs valuation legislation
Customs Code Decree Ch. 32 Calculation of customs duties and taxes I. Basic provisions Art. 222 Objective of taxation, customs duties, taxes 1. Basic provisions for determining the and the tax base customs value Art. 223 Main provisions relating to the definition of 2. The statements to determine the customs customs value value Art. 224 Order of statements and determination of 3. Rights and obligations of the declarant customs valuation Art. 225 Rights and obligations of the declarant 4. Rights and obligations of the customs authorities Art. 226 Rights and obligations of the customs II. Methods of determining the customs value authorities of the imported goods, the order in which they are applied Art. 227 Methods for determining the customs value 5. Application of the methods for determining of goods the customs value Art. 228 Transaction value method 6. Method of transaction value (method 1) Art. 229 Transaction value of identical goods method 7. Additional charges to the price actually paid or payable Art. 230 Transaction value of similar goods method 8. Permitted deductions from the price actually paid or payable Art. 231 Deductive value method 9. Requirements for the application of the method of transaction value (applying method 1) Art. 232 Computed value method 10. Method of transaction value of identical goods (method 2) Art. 233 Backup method 11. Method of transaction value of similar goods (method 3) Art. 234 Calculation of customs duties and taxes 12. The deductive value method (method 4) Art. 235 Application of rates of customs duties 13. The computed value method (method 5) Art. 236 Foreign currency translation for the 14. Reserve customs valuation method purposes of calculating customs duties and (method 6) taxes Art. 237 Calculation of customs duties and taxes in III. Special provisions the illicit movement of goods across the 15. The assessment of media software for border or use of goods in violation of data-processing equipment established restrictions 16. Treatment of interest charges
Source: Customs Code and Kyrgyz Government Decree of 28 December 2004, No. 961.
3.23. The main elements of the Code and Decree on customs valuation provide for the hierarchical six methods of determining value as per the Agreement on Implementation of Article VII of GATT 1994. The Kyrgyz Republic values products on a c.i.f. basis. The special provisions as outlined in the Decree provide for the valuation of carrier media and the treatment of interest charges, pursuant to the decision on these subjects in the Customs Valuation Committee.16 According to the authorities, the main method of valuation used is the transaction value.
3.24. The Kyrgyz Republic notified its customs valuation legislation to the WTO in 2000; it has not notified any changes.17
3.1.2.2 Price sensitive products
3.25. The Customs authorities undertake additional controls on the customs valuation of certain sensitive products.18 As of September 2012, the list comprises 550 lines, at the 2-, 4-, 6-, and 10- digit HS levels, a significant number of tariff lines. If the declared customs value is below the published pricing information, additional information required from the importer by the customs
15 Code amended on 30 December 2011 (No. 257), and 5 August 2008 (No. 196); Regulation amended on 4 April 2007 (No. 94), and 5 August 2009 (No. 491). 16 WTO Document G/VAL/N/3/KGZ/1. 17 WTO Document G/VAL/N/1/KGZ/1. 18 Kyrgyz Government Decree, 11 March 2005, No. 123 amended by Decree No. 63 of 22 February 2011.
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3.1.3 Rules of origin
3.1.3.1 Non-preferential
3.26. Section II, Chapter 4, Articles 27-37 of the Customs Code contain the provisions for determining the origin of goods. The Kyrgyz Republic applies international practice and norms in its rules. The country of origin may be determined to be a single country, a customs union, a group of countries, or a region or part of a country. The two basic methods of determining origin are: goods that are wholly obtained, and goods subject to sufficient processing, i.e. substantial transformation. Article 29 provides the definition of what is wholly obtained (Table 3.6).
Table 3.6 Rules of origin, the wholly obtained criteria
Section Overview 1. Minerals extracted from the country, in its territorial sea or the seabed 2. Products of vegetable origin, grown, or harvested in the country 3. Live animals born and raised in the country 4. Products obtained in the country from grown animals 5. Products obtained by hunting or fishing in the country 6. Products of sea fishing and other products of sea fishery 7. Products obtained aboard a factory ship, exclusively from the products specified in 6) above 8. Products obtained from the seabed or marine subsoil outside the territorial sea provided that the country has exclusive rights to the seabed or the subsoil 9. Waste and scrap (recycled materials), resulting from the production or other processing operations, as well as second-hand articles, collected in the country and only for the processing of raw materials 10. High-tech products obtained in an open space on spaceships belonging to the country, or leased 11. Goods manufactured in the country exclusively from the products specified in 1-10) above
Source: Law of the Kyrgyz Republic, 12 July 2004, No. 87. Online information viewed at: http://www.customs.kg/index.php/ru/custzak/posgov.
3.27. If a product is not wholly obtained, it defaults to the second method, and different criteria may be applied to determine if there was sufficient processing of the goods to confer origin. Three alternative criteria may be used, according to Article 30: (i) change of tariff classification, at the 4- digit HS level; (ii) performance of certain production or technological operations; and ad valorem percentage criteria, where change in cost or value added is a fixed share of the finished good.
3.28. The provisions of Chapter 4 of the Code do not describe any specific production or technological operations that will confer origin; rather they provide a negative list of seven operations that do not confer origin, such as simple assembly, preservation, mixing. The ad valorem percentage level needed to confer origin is not specified in the Code.
3.29. A certificate of origin issued by the competent authority in the exporting country, or a declaration of origin must be submitted upon importation. A certificate or declaration is not required for goods in transit or goods subject to temporary importation; goods previously released in free circulation; goods of a value below som 2,500, and goods imported under the "simplified procedures" by natural persons.
3.1.3.2 Preferential
3.30. The provisions for preferential rules are contained in the same section of the Customs Code. There are no separate rules per se, but deviations from the non-preferential rules apply in some cases. For determining origin pursuant to the significant processing criteria, the change of tariff classification at the 4-digit tariff level criteria would be applied for determining origin of preferential trade.
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3.31. Goods submitted for preferential tariff conditions are subject to the rules of "immediate purchase and direct delivery". A certificate of origin is required from countries receiving tariff preferences, in the format prescribed in the relevant treaty.
3.1.3.3 Special rules of origin in free economic zones
3.32. Special rules of origin apply to goods produced in the free economic zones. To meet the substantial transformation rule based on value, the value added should not be less than 30% of the ex-factory price, or 15% for home appliances and electronics.19 To meet the wholly obtained criteria, products must be made exclusively from Kyrgyz inputs such as minerals mined, plant products grown and harvested, live animals born and raised, products obtained from animals, products of hunting or fishing, and recycling and wastes also qualify.
3.1.3.4 Notifications
3.33. The Kyrgyz Republic has not notified legislation on preferential or non-preferential rules of origin to the WTO Committee on Rules of Origin.
3.1.4 Tariffs
3.34. The Customs Tariff of the Kyrgyz Republic is the main legal instrument providing tariff rates and associated rules.20 It contains five sections on general provisions, the customs tariff, seasonal and special duties, trade regimes and preferences, and final provisions; and three annexes, including the commodity nomenclature, which provides information on the applied rates of duty.
3.1.4.1 Nomenclature
3.35. The Kyrgyz Republic became a contracting party of the WCO Harmonized System Convention21 (HS) in April 2007, and it entered into force for the Kyrgyz Republic on 1 January 2009.22 While the legal requirement to apply the HS commenced only in 2009, the Kyrgyz Republic had been applying the HS for some time through its adherence to the Eurasian Economic Community’s common nomenclature.
3.36. The Eurasian Economic Community nomenclature is at the HS 10-digit level and comprises approximately 11,000 tariff lines. The Kyrgyz Republic has a few national tariff lines that deviate from that of the Community, but there are no major differences. The Kyrgyz Republic has not yet implemented the HS2012 changes to the nomenclature; the last updates include only the HS2007 nomenclature changes. This is due to the adherence of the Kyrgyz Republic to the 4th version of the Eurasian Economic Community nomenclature, and not the most recent 5th version, which most Eurasian Economic Community members have adopted. The Kyrgyz Republic has plans to implement HS2012 changes although it is not clear when one option is to proceed directly to the 6th version of the Eurasian Economic Community nomenclature in the near future.
3.1.4.2 MFN applied tariffs
3.37. The Kyrgyz Republic has ad valorem, specific, and mixed MFN tariffs. These are applied to all WTO Members and to other countries where an MFN provision has been agreed. While individual tariff rates are provided by the tariff nomenclature, a maximum rate of duty of 35% may be applied when the country of origin does not have MFN or preferential status, when the country of origin cannot be established, and when the direct purchase and direct delivery rules are not followed for preferential trade.
3.38. The Kyrgyz Republic's applied tariffs remained virtually unchanged during the period under review (Tables 3.7 and A3.1). Tariffs remain low, averaging 5%, and nearly half of all tariffs are duty-free (Chart 3.1). Tariffs on agricultural products are on average, about twice the level of those of industrial products. Tobacco, alcohol products, fish, and clothing have the highest tariffs,
19 Kyrgyz Resolution, 3 November 1998, No. 715. 20 Law of the Kyrgyz Republic, 29 March 2006, No. 81. 21 International Convention on the Harmonized Commodity Description and Coding System. 22 World Customs Organization (2011).
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- 37 - averaging over 10%. The lowest tariffs, with zero rates of duty, are for the wood, paper, cotton, and arms and ammunition. There are very few peaks and almost no tariff escalation between first stage of processing and fully processed products. A significant number of applied rates are below the bound rates, giving the Kyrgyz Republic tariff policy space (Chart 3.2). This is mainly in the arms & ammunition, misc. manufacturing, hides & skins, and plastics & rubber sectors.
Chart 3.1 Distribution of MFN tariff rates, 2012
Duty free (46.4)
5% (12.2)
10% (35.2)
12% (2.7)
15% (2.1)
20% (1.3)
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500
Number of tariff lines Note: Figures in parentheses denote the percentage share of total lines. Calculations exclude specific rates (representing 0.1% of total tariff lines), and include the ad valorem part of mixed rates. Source: WTO Secretariat calculations, based on data provided by the authorities of the Kyrgyz Republic.
Table 3.7 Tariff structure, 2006, 2009, and 2012 (%, unless otherwise indicated) MFN applied Final bounda 2006 2009 2012 Bound tariff lines (% of all tariff lines) 99.9 99.9 99.9 99.9 Simple average rate 4.9 5.1 5.0 7.8 WTO agricultural products 8.4 8.7 8.4 12.1 WTO non-agricultural products 4.1 4.1 4.1 6.6 Duty free tariff lines (% of all tariff lines) 46.1 45.5 46.4 18.9 Simple average rate of dutiable lines only 9.2 9.4 9.4 9.6 Tariff rate quotas (% of all tariff lines) 0.0 0.0 0.0 0.0 Non-ad valorem tariffs (% of all tariff lines) 1.3 1.4 1.4 1.8 Domestic tariff "peaks" (% of all tariff lines)b 2.7 1.3 1.3 0.0 International tariff "peaks" (% of all tariff lines)c 0.0 1.3 1.3 4.0 Nuisance tariffs (% of all tariff lines)d 0.0 0.0 0.0 0.0 Total number of tariff lines 11,128 10,954 10,990 10,985e Ad valorem rates 5,843 5,817 5,729 8,707 Duty free 5,135 4,983 5,102 2,076 Specific rates 11 11 14 19 Mixed rates 139 143 145 181
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MFN applied Final bounda 2006 2009 2012 Bound tariff lines (% of all tariff lines) 99.9 99.9 99.9 99.9 Simple average rate 4.9 5.1 5.0 7.8 WTO agricultural products 8.4 8.7 8.4 12.1 a Final bound rates are based on the 2012 tariff schedule in HS07 nomenclature. b Domestic tariff peaks are defined as those exceeding three times the overall average applied rate. c International tariff peaks are defined as those exceeding 15%. d Nuisance rates are those greater than zero, but less than or equal to 2%. e Total number of bound lines (including partially bound rates). Note: 2006 tariff is based on HS02 nomenclature, 2009 and 2012 tariffs are based on HS07. Calculations for averages are based on national tariff line level (10-digit), excluding specific rates (14 tariff lines falling under alcoholic beverages) and including the ad valorem part of mixed rates. Source: WTO Secretariat calculations, based on data provided by the authorities of the Kyrgyz Republic.
Chart 3.2 Average applied MFN and bound tariff rates, by HS section, 2012 % 15.0
MFN Bound 12.5 Bound average (7.8%)
10.0 MFN applied average (5.0%)
7.5
5.0
2.5
0.0 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
01 Live animals & products 07 Plastic & rubber 13 Articles of stones 19 Arms & ammunition 02 Vegetable products 08 Hides & skins 14 Precious stones, etc. 20 Miscellaneous manufacturing 03 Fats & oils 09 Wood & articles 15 Base metals & products 21 Works of art, etc. 04 Prepared food, etc. 10 Pulp, paper, etc. 16 Machinery 05 Mineral products 11 Textiles & articles 17 Transport equipment 06 Chemicals & products 12 Footwear, headgear 18 Precision instruments Note: Calculations exclude specific rates and include the ad valorem part of mixed rates. Source: WTO Secretariat calculations, based on data provided by the authorities of the Kyrgyz Republic.
3.1.4.3 WTO bindings
3.39. The Kyrgyz Republic was one of the earliest countries to accede to the WTO under the procedures of Article XII, and was the first CIS country to do so. Its bound rates, at the time of accession, and currently, are some of the lowest among recently acceded countries and WTO membership overall. Over 20% of tariff lines were bound at zero, in part due to the Kyrgyz Republic’s participation in most of the Uruguay Round zero-for-zero sectorial initiatives, and the Information Technology Agreement. The Kyrgyz Republic does not have any special safeguard or TRQ provisions, and has bound all other duties and charges at zero. The Kyrgyz Republic made certain commitments with respect to the Agreement on Trade in Civil Aircraft in its Protocol of Accession; to date it is not a signatory to this agreement.
3.1.4.4 Applied rates exceeding bound rates
3.40. A comparison of bound and applied rates carried out using the 2012 applied rates, found that approximately 90 tariff lines were in excess of the WTO bindings. These mainly concerned
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- 39 - fruits, juices, certain machinery, and auto parts. The Kyrgyz authorities were aware of these discrepancies and were making efforts to correct the situation, but it would take some time to pass the necessary legislation. A second set of discrepancies was found for certain specific or compound rates of duty when the ad valorem equivalents were calculated from data received from the Kyrgyz authorities and compared to the bindings. Approximately half of these tariff lines, all in the alcohol sector, were found to exceed the bound rates, some by significant margins.
3.41. An important anomaly in terminology affects a number of tariff lines on alcohol. The Kyrgyz Republic's WTO Schedule uses the terminology "10% or US$0.55 per litre, whichever is lower" while the applied rate uses the terminology "10% but not less than US$0.55 per litre". Due to this difference, the applied rate may be higher than the bound rate as the terminology introduces a "floor" rate. According to the authorities, this combined duty was introduced to prevent the under- valuing of goods.
3.1.4.5 Preferential and duty-free regimes
3.42. Preferences, i.e. zero duties, are granted for all products originating in 46 least developed countries. However, imports from LDCs account for a very small percentage of imports. The Kyrgyz Republic has a free-trade agreement or similar relationship with Azerbaijan, Armenia, Belarus, Kazakhstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan, and Ukraine;23 imports from these countries are also duty free. In both cases, the products must be produced in those countries and imported directly.
3.1.4.6 Seasonal duties
3.43. Article 9 of the customs tariff for seasonal rates of duty to be applied, either on imports or exports. The seasonal rate of duty, which is set by the parliament, may replace the normal duty rate for a maximum of six months. Seasonal duties were in place on wheat flour from 16 May to 31 July 2012 (HS 1101.00.110.0-150.0-som 2.5/kg).24
3.1.5 Other charges affecting imports
3.1.5.1 Charges and fees upon importation
3.44. The Kyrgyz Republic has four additional charges on imports. The customs clearance fee, is levied at 0.15% of the customs value or 0.30% where clearance procedures take place outside normal working hours or locations. The percentage calculated must also fall into the parameters of minimum and maximum levels. A fee of not less than two times the conditional unit of som 100 and a maximum of som 250,000 for entries outside normal hours or locations, also determine the charge.25
3.45. Fees of som 100 per hour are charged for the customs escort of goods. This fee often applies when customs clearance takes place at an inland customs post. 26
3.46. Other fees charged on importation include a fee of som 2,500 per foreign transport vehicle entering the Kyrgyz Republic. There are fees also in the case of an importer requesting an advanced customs ruling, a fee of som 500 is applicable.
3.47. Different import charges are applied to the importation of certain raw materials containing precious metals, i.e. metal scrap, gold alloy, etc. pursuant to the law on measures of State Support for the Development of a Precious Metals Plant.27 This provision provides for the charge of som 100 times 100 conditional units (som 10,000), instead of the normal customs clearance fee.
23 The Kyrgyz Republic no longer has free trade with Georgia after its departure from the CIS. 24 Online information viewed at: http://mineconom.kg/index.php?option=com_content&view =article&id=95&Itemid=515&lang=en. 25 Chapter 33 of the Customs Code, Articles 238-240; and Resolution of the Kyrgyz Government, 10 April 2008, No. 140. 26 Chapter 33 of the Customs Code, Articles 238-240; and Resolution of the Kyrgyz Government, 10 April 2008, No. 140. 27 Kyrgyz Government Decree, 23 June 2011, No. 338.
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This provision was enacted to boost production and attract additional volumes of raw materials for reprocessing at the joint-stock company Kyrgyzaltyn.
3.1.5.2 Value-added tax (VAT)
3.48. A value-added tax is applied to the sale of goods, works, and services supplied in the Kyrgyz Republic. There are two VAT rates under the Tax Code:
− 12% for all taxable supplies and taxable imports, and
− 0% for most exported items, including
• Exported goods except for refined gold and silver, including alloy;
• International transportation of passengers, baggage, and cargo, except for transport by rail;
• Services for the transit flight of aircraft, including services for the international transport of passengers, baggage, and cargo, except for rail transport; and
• Services for electricity supply pumping stations for irrigation of agricultural land and drinking water.
3.49. The 12% VAT rate was reduced from 20% by a change in the Tax Code in late 2008.28 Imported, domestically supplied, and some exported supplies (i.e. goods, works, and services) are subject to VAT. However, there are a number of exemptions (Table 3.8).
Table 3.8 VAT exemption list, 2013
Tax code Good, work, or service reference 238 Supply of residential land, buildings, and facilities 239 Supply of agricultural produce and products of the food processing industry 240 Delivery of public services and delivery to correctional institutions 241 Supply of fixed assets under financial leasing arrangements 242 Goods and services in the medical field 243 Financial services 244 Insurance services 245 Pension funding services 246 Transport services 247 Roaming services, interconnection, and international communication services 248 The supply of textbooks, school supplies, and scientific publications in the state language 249 Processing of goods placed under customs regimes 250 Privatization 251 Delivery to charitable organizations 252 Supplies by non-profit organizations 253 Delivery free of charge 254 Delivery by state or municipal organizations of ritual goods and funeral services 255 Supply of mineral fertilizers and chemical plant protection products, vaccines and medicines for animals 255-1 Delivery of agricultural machinery 256 Importation and exportation of refined gold and silver, including alloy
Source: Tax Code.
3.50. In addition to the general exemptions, certain exemptions apply only to imports (Table 3.9). VAT is assessed on the taxable value for most products, i.e. the total amount paid or payable for all supplies, not including sales tax, or VAT; and for imported products it is the customs value,
28 Decree of 17 October 2008, No. 231. The 20% rate may still be applied to materials in inventory prior to this date.
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including duties and taxes, but excluding VAT. VAT may be credited on inputs when used in the manufacture of end-products if subject to VAT.
Table 3.9 VAT exemptions on imported goods, works, and services
Tax Code Good, work or service reference 257 Securities, passports, and identity cards of Kyrgyz citizens 257 Specialized items for the disabled 257 Textbooks and school supplies, scientific publications 257 Goods provided VAT exemptions under customs legislation 257 Scientific equipment used for geological expeditions to measure and control to seismic situation 257 Excise duty stamps and currency, except that used for numismatic purposes 257 Materials used to assist after the consequences of natural disasters, armed conflicts 257 Humanitarian assistance, grants, in accordance with the procedures of the Government of the Kyrgyz Republic 257 For official use of diplomatic missions and consular offices of foreign States and international organizations, as well as for private use by diplomatic agents, including members of their families, in accordance with international treaties 257 Baby food 257 Natural gas 257 Medicinal products 257 Specialized items for the construction and renovation of furnaces 258 Pedigree livestock and seed materials, mineral fertilizers, and chemical plant protection products, as well as vaccines and drugs for animals 259 Fixed assets
Source: Tax Code.
3.1.5.3 Excise taxes
3.51. An excise tax is applied to certain alcohol, tobacco, crude petroleum, and petroleum products (Table 3.10).29 The tax basis is a unit of volume or value/price of the good. The value could be based on the sales price, market price, or customs value. When the price is used, the cost of VAT, excise, and sales tax is excluded. The excise duty is applied to both imported and domestic goods. Different payment due dates may apply depending on whether the good is imported, produced, or subject to the excise duty stamp.
Table 3.10 Goods subject to excise tax
Product HS Rate Alcohol products Undenatured ethyl alcohol with an 2207 som 350 per litre alcoholic strength by volume of 80% or more; ethyl alcohol and other spirits, denatured, of any strength Vodka 220860 som 200 per litre Liquor-vodka products 220830; 220870;220890 som 200 per litre Fortified drinks, fortified juices and 220840; 220850 som 200 per litre tonics Wine 2204, 220410 to 220430, som 100 per litre 2205, 2206 Brandy (brandy alcohol) 2208201200-2208202900, som 135 per litre 2208206200-2208208900 Sparkling wines, including champagne 220410 som 110 per litre Beer 2203 som 25 per litre Wine products 220430 som 10 per litre Low alcohol drinks 220890 som 60 per litre
29 Excise taxes were applied on certain jewellery until 30 June 2011 ( Kyrgyz Law of 30 June 2011, No. 64).
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Product HS Rate Tobacco products Cigarettes with filter: - from the date of entry into force of the 2402 som 80 per 1,000 pieces + law "on introduction of modifications 7% of the price calculated, but into some legislative acts of the Kyrgyz not less than som 130 per Republic" 31 December 2011 inclusive 1,000 pieces - 1 January 2012 to 31 December 2012 2402 som 100 per 1,000 pieces + inclusive 7.5% of the price calculated, but not less than som 150 per 1,000 pieces - from 1 January 2013 2402 som 6 per 1,000 pieces + 3.6% of the price calculated, but not less than som 24 per 1,000 pieces Cigarettes without filter: - from the date of entry into force of the law 2402 som 5 per 1,000 pieces + 3% "on introduction of modifications into of the price calculated, but not some legislative acts of the Kyrgyz less than som 18 per 1,000 Republic" 31 December 2011 inclusive pieces - 1 January 2012 to 31 December 2012 2402 som 5.5 per 1,000 pieces + inclusive 3.3% of the price calculated, but not less than som 20 per 1,000 pieces - from 1 January 2013 2402 som 6 per 1,000 pieces + 3.6% of the price calculated, but not less than som 24 per 1,000 pieces Cigars and cigarillos 2402 som 297,00 per 1,000 pieces Other articles containing tobacco 2403 som 5 per kg Petroleum products Petrol, light and medium distillates, 2710111100-2710119000, som 3,000 per ton gasoline 2710191100-2710191500, 2710192500-2710192900 Jet fuel 2710192100 som 2,000 per ton Diesel fuel 2710193100-2710194900 som 800 per ton Fuel oil 2710195100-2710196900 som 600 per ton Oil and gas condensate 2709001000, 2710197100- som 1,400 per ton 2710199900 Crude oil and petroleum products 2709009000 som 0 per ton
Source: Tax Code of the Kyrgyz Republic, 17 October 2008, No. 230, including amendments and decrees up until 22 December 2011.
3.52. While certain products are subject to excise, the tax code provides some general exemptions. In particular, exported goods, upon confirmation that they were exported. Goods imported by physical persons under special rules are also exempt from excise duty, as well as goods required for vehicles engaged in international transport and confiscated or abandon property.
3.1.5.4 Sales tax
3.53. In general, domestic and foreign enterprises, as well as entrepreneurs are subject to sales tax on goods, works, and services. Exceptions for certain industries and transactions include agricultural production, banking, charitable organizations, and certain transfers of property. The sales tax rate is 1.5%, 2.5%, or 3.5% depending upon whether the transaction is trading, commercial, or other activities, and whether VAT is applicable.
3.1.5.5 Special tax exemptions
3.54. Pursuant to a new Government law adopted in December 2012, certain armament, military equipment, and special equipment imported by state bodies is now exempt from VAT and customs duties.30 Also, a 2013 Government Decree exempts certain medicines from VAT.31 Approximately
30 Online information viewed at: www.president.kg%2Fru%2Fnews%2Fzakony%2F1415_podpisan _zakon_osvobojdayuschiy_ot_uplatyi_nds_i_tamojennyih_poshlin_voorujenie_voennuyu_tehniku_voennoe _imuschestvo _spetsialnuyu _tehniku_i_spetsialnyie_sredstva%2F.
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180 medicines and medical products are listed in the Decree, by HS code, the majority are contained in HS chapters 29 and 30, i.e. pharmaceuticals.
3.1.6 Import prohibitions, restrictions, and licensing
3.1.6.1 Import prohibitions
3.55. The Kyrgyz Republic prohibits certain goods from being imported, sometimes under international obligations such as the Montreal Protocol. Some items are prohibited only under the simplified import procedures (Table 3.11).
Table 3.11 Import prohibitions
Goods Information Reference Weapons, ammunition, explosives Prohibited under the simplified Decree of 31 December 2004, import regime only No. 976 Narcotic drugs, psychotropic substances, Prohibited under the simplified Decree of 31 December 2004, and equipment for smoking opium and import regime only No. 976 hashish Potent poisons Prohibited under the simplified Decree of 31 December 2004, import regime only No. 976 Publications, films, photographs, General import prohibition Decree of 31 December 2004, videotapes, sound and video recordings, No. 976 manuscripts, gramophone records, pictures, pictorial products, and other media containing information that may cause harm to the political, economic interests, State security, public order, health, or morals of the Kyrgyz Republic Other items which are prohibited by General import prohibition Decree of 31 December 2004, international agreements or legislation of No. 976 the Kyrgyz Republic Ozone-depleting substances (Montreal General import prohibition Government Resolution of Protocol) 19 September 2009, No. 594 Birds and poultry from avian influenza General import prohibition Decree of 25 April 2006, territories No. 297
Source: Decrees and Resolution as cited, and information provided by the Kyrgyz authorities.
3.56. In 2000, the Kyrgyz Republic notified the WTO that it had no quantitative restrictions (QRs).32 It has made no subsequent notifications.
3.1.6.2 Quotas
3.57. The Kyrgyz Republic maintains annual import quotas on alcoholic beverages, including beer, for non-WTO-member countries.33 According to the law on the state regulation of production and turnover of ethyl alcohol and alcohol products, importation of ethyl alcoholic, except cognac, is allowed only upon termination or suspension of production of ethanol in the Kyrgyz Republic or in case of reduced production when domestic supply cannot meet the needs of the alcohol industry.34
3.58. The annual level of import quotas of alcohol is based on the average value of imports over the previous three years, on the basis of official statistics. The annual quota volume limit for importation is guided by importers' applications, consumer demand on the domestic market, purchasing power, and domestic production capacity. When considering applications for import quotas, preference is given to importers with exclusive or direct agreements with manufacturers, superior quality or price relative to quality factors, products that are not produced domestically, and applicants that invest in the Kyrgyz economy or social sector and do not have government debts.35 Quotas are allocated on a competitive basis through a contest commission. In 2012, the state agency for control over the production and turnover of ethyl spirits and alcohol products was
31 Kyrgyz Government Decree of 24 January 2013, No. 31. 32 WTO Document G/MA/NTM/QR/1/Add.7. 33 Law of 5 April 2004, No. 227, and Regulation. 34 Article 10, Law of 24 September 2009. 35 Kyrgyz Government Decree of 5 April 2004, No. 227.
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- 44 - dissolved and its functions for licensing for production and import were moved to the State Tax Service. Functions of state policy on production were moved to the Ministry of Agriculture and Land Reclamation, and quality and safety aspects to the State Inspectorate for phyto-sanitary and veterinary safety.
3.59. Although the main provisions of alcohol import quotas are not applied to WTO Members, all importers must pay taxes and charges to the public agency in charge of circulation in order to obtain the registration form for each shipment. In order to obtain the form register, an importer must file an application, submit a goods declaration, copy of the invoice, copy of the receipt of payment of taxes and duties, copy of certificate of origin, and copy of the certificate of quality. The certificates and receipts must be stamped or certified.
3.1.6.3 Licensing
3.60. Licensing is used by the Kyrgyz Republic as a trade policy instrument in order to protect national security, comply with international obligations, maintain public law and order, protect the financial position and balance of payments of the country, and protect life and health of plants, animals, humans, and the environment. While many of the laws or resolutions that form the legal framework for import licensing are more than 10 years old, there have been many amendments and updates in recent years (Table 3.12). For example the Law on Licensing was amended 16 times during the period under review.
Table 3.12 Main laws concerning import licensing
Law Reference Summary Law on Licensing Law of 3 March 1997, No. 12 General framework on all types of licensing, in particular including 27 changes, Law of 18 January 2001, No. 13 import and export licensing additions, and amendments Law of 12 June 2001, No. 48 Law of 18 January 2001, No. 13 Law of 17 February 2003, No. 38 Law of 18 February 2003, No. 41 Law of 10 March 2003, No. 59 Law of 11 June 2003, No. 95 Law of 1 August 2003, No. 165 Law of 24 December 2003, No. 239 Law of 13 August 2004, No. 129 Law of 27 January 2006, No. 21 Law of 28 April 2007, No. 45 Law of 19 April 2008, No. 62 Law of 28 April 2008, No. 73 Law of 2 June 2008, No. 105 Law of 12 June 2008, No. 118 Law of 23 June 2008, No. 126 Law of 23 October 2008, No. 232 Law of 20 November 2008, No. 241 Law of 31 July 2009, No. 258 Law of 13 October 2009, No. 270 Law of 5 October 2011, No. 161 Law of 21 December 2011, No. 242 Law of 6 October 2012, No. 169 Law of 10 October 2012, No. 170 Law of 1 October 2012, No. 171 Law of 14 November 2012, No. 182 Resolution on approval of Resolution, 25 June 2009, No. 1313-IV Approved procedures for the registration and licensing registration and issuance of procedures licences for import and export Resolution on registration and Resolution, 8 June 1998, No. 1101-1 Procedures and rules for licensing issuing licences Resolution on licensing Resolution, 29 October 1998, No. 709 List of products subject to organizations and experts to licensing and licensing body licence specific goods
Source: Ministry of Economy website, and information from the Kyrgyz authorities.
3.61. According to the legal framework, the granting of licences is non-discriminatory, i.e. foreign legal entities and natural persons receive licences under the same conditions and in the same
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- 45 - manner as legal entities and persons of Kyrgyz origin. Single licences are issued for an individual transaction, and general licences are issued for the period necessary to carry out the import operations, but the maximum validity for a licence is one calendar year. The Kyrgyz Republic maintains a register of licences granted, in book form, showing name, address, registration details of the person or entity; activities for which a licence has been granted; licence form, date of issue, and validity; and other information as necessary. The information in the register is open to all interested persons.
3.62. According to procedures and the authorities, all licences are non-automatic. The resolution on the procedures states in paragraph 13, that the decision to issue or not issue a licence rests with the licensor. This decision is guided by the opinion of an organization expert, and the licensor has 30 days from the registration of all documents to issue or deny the licence. Grounds for refusal to issue a licence include: failure to submit the necessary documents, the introduction of quantitative restrictions, establishment of a state monopoly, and failure to pay the licensing fee. The procedures also allow for the suspension or revocation of a licence under certain conditions; in the case of suspension, cancellation, or termination of a licence, the licencee has the right to appeal; however, procedures for appeal are not elaborated. Denial of a licence does not appear as grounds for appeal.
3.63. Relatively few import licences have been issued (Chart 3.3), but the number has increased during the period 2007-12.
Chart 3.3 Import licences, 2007-12 Number 70 61 60 52 50
40
30 30 25 19 20 20
10
0 2007 2008 2009 2010 2011 2012
Source: Data provided by the Kyrgyz authorities.
3.64. The list of products subject to licensing changes periodically; currently 17 categories of products are subject to import licence (Table 3.13).
Table 3.13 Products subject to import licensing
Product HS codes Licensing Operational Rationale Body Ministry Decyphering/cryptographic 8471, 847330000, Ministry of State Committee for Security tools, equipment, software, 854390900 Economy National Security devices Weapons and military Not provided in the law Ministry of Ministry of Defence Security equipment Economy Defence materials and related Not provided in the law Ministry of Ministry of Defence Security protection devices Economy Military uniforms and clothing Not provided in the law Ministry of Ministry of Defence Security Economy Normative documents for Not provided in the law Ministry of Ministry of Defence Security military Economy Gunpowder, explosives, 3601, 3602, 3603, 3604 Ministry of the State Agency for Security pyrotechnics Interior Geology and Mineral Resources
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Product HS codes Licensing Operational Rationale Body Ministry Nuclear materials 2612, 2844, 2845, Ministry of Ministry of Defence, Security, 8401, 2803 Economy National Academy of international Sciences, State obligations Agency on Environmental Protection and Forestry Equipment and technology, Not provided in the law Ministry of Ministry of Defence, Security, having a dual use, which can Economy National Academy of international be used for mass destruction Sciences, State obligations Agency on Environmental Protection and Forestry Raw materials for weapons Not provided in the law Ministry of Ministry of Defence Security, and military technology Economy international obligations
Precious metals, alloy metals, 2616, 2843, 7106-7112 Ministry of Ministry of Finance Security clad, ores, concentrates, Economy waste and scrap Narcotics and psychotropic Not provided in the law State Service Ministry of Health, Drug control drugs precursors for Drugs Ministry of the Control Interior Potent poisons Not provided Ministry of Ministry of Health, Security, Economy National Academy of international Sciences, State obligations Agency on Environmental Protection and Forestry Hazardous waste Basel Convention list on Ministry of Ministry of Health, Protect the the control of trans- Economy State Agency on environment boundary movement of Environmental dangerous goods Protection and Forestry Official and civilian arms Not provided in the law Ministry of the Ministry of the Security Interior Interior Alcohol and spirits 2203, 2204, 220860, Ministry of Alcohol inspectorate .. 220890 6901 Economy Ozone depleting substances As listed in the Vienna Ministry of State Agency on Protect the Convention on the Economy Environmental environment protection of the ozone Protection and layer and the Montreal Forestry Protocol on substances that deplete the ozone layer Tobacco Not provided Ministry of State Tobacco .. Economy enterprise
.. Not available. Source: Kyrgyz Government Resolution, 29 October 1998, No. 709 and information provided by the Kyrgyz authorities.
3.65. The Kyrgyz Republic notified its laws on import licensing to the WTO in 2000 and replied to the Questionnaire on Import Licensing Procedures in 2000 and in 2006.36 Since that time, the laws and regulations pertaining to import licensing have evolved, and the notifications are outdated in terms of legal provisions and practice.
3.1.7 Contingency measures
3.1.7.1 Anti-dumping
3.66. The Kyrgyz Republic notified its law on anti-dumping in 1999 and has not notified any changes since then.37 The anti-dumping law notified to the WTO was passed by the Government in
36 WTO Documents G/LIC/N/1/KGZ/1, G/LIC/N/3/KGZ/1, and G/LIC/N/3/KGZ/2. 37 WTO Document G/ADP/N/1/KGZ/1, and Law of the Kyrgyz Republic, 31 October 1998, No. 139.
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1998 and related regulations entered into force in 2001. The Kyrgyz anti-dumping legislation contains 9 chapters and 59 articles, covering the main elements of the WTO Agreement, i.e. determination of dumping, determination of injury, procedure and completion of investigations, price undertakings, etc. In 2010, changes were introduced to exclude the powers granted to certain ministries and departments to issue normative legal acts, including with respect to anti- dumping procedures.38
3.67. The Kyrgyz regulations on anti-dumping, which entered into force in 2001, include rules for initiation of proceedings, information to file, public hearings, assessment, rights and duties, preliminary determination and provisional measures, pricing and duty determinations, and final decision. The regulations were amended by a resolution in 2004.39
3.68. The Kyrgyz Republic has not initiated any anti-dumping investigations or been the subject of an investigation by any WTO Member.
3.1.7.2 Countervailing duties
3.69. Similar to the case with anti-dumping, the Kyrgyz Republic has legislation and related regulations on countervailing duties, but these have never been used. The legislation dates from 1999 and associated regulations from 2001.40 The legislation has been notified to the WTO, but the 2010 amendment, which is the same as the anti-dumping amendment has not.41 The regulations for anti-dumping, procedures and protocol also cover countervailing duty investigations; they are the same Government Resolutions.
3.1.7.3 Safeguards
3.70. Safeguard legislation, as approved by the Kyrgyz Government in 199842, was notified and reviewed in the Committee on Safeguards during 1999-2000.43 In 2010, an amendment was made to the legislation regarding certain competences of the Authorized Body, in particular amending its right to publish certain normative acts.44 This legislative change has not been notified to the Committee on Safeguards.
3.71. In 2001, the Government approved regulations related to safeguard measures.45 These regulations provide for the conduct of proceedings prior to the imposition of a safeguard measure, in particular, the application process to file, information to provide in the application, notice of interested persons, the rights and duties of such persons, and the provisions for a hearing. The regulations were amended in 2004.46
3.72. During 2009-10, the Kyrgyz Republic notified the initiation of three safeguard investigations on white sugar, wheat flour, and poultry eggs.47 The investigation relating to wheat flour resulted in the imposition of safeguard duties of som 3 per kg, from 10 November 2009 to 26 August 2010, and of som 1 from 27 August 2010 to 10 November 2010.48 The two other investigations did not result in the imposition of safeguard measures, although the Kyrgyz Republic has yet to notify the WTO of this outcome.
38 Law of 4 March 2010, No. 43. 39 Government Resolution 20 January 2001, No. 14, and Government Resolution 17 August 2004, No. 622. 40 Law of the Kyrgyz Republic, 31 October 1998, No. 140; Kyrgyz Republic Government Resolution, 20 January 2001, No. 14; and Government Resolution 17 August 2004, No. 622. 41 WTO Document G/SCM/N/1/KGZ/1. Amendment in Law of 4 March 2010, No. 43. 42 Law of the Kyrgyz Republic, 31 October 1998, No. 141. 43 WTO Documents G/SG/M/15 and G/SG/N/1/KGZ/1. 44 Law of the Kyrgyz Republic, 15 February 2010, No. 28. 45 Decision of the Kyrgyz Republic, 20 January 2001, No. 15. The regulations have not been notified to the WTO. 46 Decree of the Kyrgyz Republic, 17 August 2004, No. 622. 47 WTO Documents G/SG/N/6/KGZ/1, G/SG/N/6/KGZ/2, G/SG/N/6/KGZ/3. 48 WTO Documents G/SG/N/8/KGZ/1/Suppl.1, G/SG/N/10/KGZ/1, G/SG/N/8/KGZ/1/Suppl.2, G/SG/N/10/KGZ/1/Suppl.1.
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3.1.8 Other measures
3.73. During the review period, the Kyrgyz Republic did not conduct any countertrade or barter arrangements with respect to international trade. This practice ceased prior to 2007.
3.1.9 State trading and import-related operations of state enterprises
3.74. The Kyrgyz Republic has never notified state-trading entities to the WTO Committee on State Trading.49 In its Protocol of Accession, there was acknowledgement of several entities that would meet the state-trading definition of Article XVII.50 While some have been disbursed or changed their operations significantly, there are still a number of entities that appear to have state-trading privileges pursuant to the provisions of Article XVII (Table 3.14).
Table 3.14 State-trading enterprises
State enterprise Area of activity Additional information Kyrgyz Pechat Import and export of postal stamps Subdivision of the Ministry of Transport and Communication Kyrgyz Gaz Natural gas Monopoly, joint-stock company (the Government is the owner) on transportation and distribution of natural gas Temir SE Scrap and wastes of ferrous and non- State regulation of collection, purchase, ferrous metals processing, sale of scrap and ferrous and non- ferrous metals wastes; Exclusive right to export scrap of ferrous and non-ferrous metals wastes Kyrgyzalko Spirit production State regulation pursuant to the Law of the Kyrgyz Republic on State Regulation of Production and Turnover of Ethyl Spirit and Alcohol Products dated October 13, 2009, No. 269
Source: Information provided by the Kyrgyz authorities.
3.1.10 Standards and other technical requirements
3.75. The main law on technical barriers to trade dates from 2004 and includes provisions on mandatory standards and recommended guidelines. During the period under review, the Kyrgyz Republic gradually reduced the number of products subject to compulsory certification. Since 2006, the number of such products has decreased from 7,000 to 234.51
3.76. The Center for Standardization and Metrology under the Ministry of Economy of the Kyrgyz Republic (CSM) is the principle government body involved in developing and adopting standards. In addition, 23 technical standardization committees, consisting of representatives of business, R&D, consumer rights protection organizations, and others, are involved in developing national standards. The technical standardization committees develop, revise, or amend about 60 national standards each year. Under the framework of the existing system, national standards are harmonized with international standards such as ISO, IEC, and the Codex Alimentarius.
3.1.10.1 Standards
3.77. The CSM performs the functions of a national standardization body and is responsible for the development and adoption of standards. The Kyrgyz Republic is in the process of transitioning from state standards (GOST) to international standards. The CSM is a correspondent member of the ISO. It is also a member of Inter-government Commission on Standardization, Metrology and
49 The Kyrgyz Republic undertook a commitment to notify any enterprise falling within the scope of Article XVII at the time of accession. WTO Document WT/ACC/KGZ/26, paragraph 113 of the "Report of the Working Party on the Accession of Kyrgyz Republic". 50 WTO Document WT/ACC/KGZ/26. 51 Resolution of the Government of the Kyrgyz Republic dated 30 December 2005, No. 639 "On mandatory conformity assessment of products" (as amended by the Resolution of the Government of the Kyrgyz Republic dated 6 March 2013, No. 122.
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Certification among CIS countries, which was recognized as a regional organization of ISO, responsible for promoting and applying international standards.
3.78. As of 1 January 2012, 22,542 standards are used and registered with the National Informational Fund of Technical Regulations and Standards. Out of this total, 20,372 are GOST, 1,280 are national standards of other states (GOST R, STB, etc.), 592 are national standards of the Kyrgyz Republic, and 298 are international standards. In general, 46% of the national standards are harmonized with the international and European standards. The major share of standards applied in the territory of the Kyrgyz Republic are Inter-State standards, which are developed, updated, and harmonized with international and European standards at the level of the Inter-State Council for Standardization and Metrology of CIS countries.
3.79. Pursuant to the Code of Good Practice for the preparation, adoption and application of standards, notifications on draft standards are published on the CSM website and communicated to the Information Center of ISO/IEC.
3.1.10.2 Technical regulations
3.80. The fundamental principles of technical regulations are contained in the law on technical regulations, adopted in May 2004.52 The law divides the requirements of technical regulations into mandatory and voluntary. The mandatory requirements are set forth in the technical regulations, whereas standards, documents of voluntary application only serve to improve the competitiveness of products.
3.81. Under the framework of the law, the Kyrgyz Republic is developing national technical regulations, establishing mandatory requirements for products, processes (methods) of production, storage, transportation, and use as well as mandatory conformity assessment procedures, through harmonization with international requirements for product and service safety regulations.
3.82. Technical regulations are adopted by laws or resolutions. As of 29 July 2013, 43 national technical regulations had been adopted. Many were adopted during the past six years (Table 3.15).
Table 3.15 Technical regulations adopted during 2006-12
Technical regulation Reference Safe operation and utilization of machinery and equipment Law of 29 December 2008, No. 280 Ecological Safety Law of 8 May 8 2009, No. 151 Safety of ground transport vehicles Law of 29 May 2009, No. 178 Safety of construction materials, goods and structures Law of 29 January 2010, No. 18 Safe construction of buildings of various purposes from Resolution of 2 August 2010, No. 143 modern rapidly raised structures and materials Safety of bottled natural mineral, natural drinking and table Resolution of 6 April 2011, No. 139 water Resolution of the Government of the KR on safety of Resolution of 6 April 2011, No. 137 pharmaceuticals for medical use Safety of confectionaries Resolution of 18 April 2011, No. 163 Safety of juices, nectars and juice bearing drinks from fruit Resolution of 19 April 2011, No. 172 and vegetables Safety of drinking water Law of 30 May 2011, No. 34 Law of the KR on safety of buildings and structures Law of June 27 2011, No. 57 Safety of ethyl spirit, vodka and liquor drinks Resolution of 5 July 2011, No. 357 Safety of winery products Resolution of 5 July 2011, No. 56 Safety of beer Resolution of 14 July 2011, No. 388 Fire safety Law of 1 August 2011 Safety of sugar Resolution of 1 August 2011, No. 437 Safety of lifting and transporting equipment and operation Resolution of 23 September 2011, No. 587 thereof Radiation safety Law of 29 November 2011, No. 224; General technical regulation on environmental safety Law of 1 March 2012, No. 1 General technical regulation on safety of ground transport Law of 18 May 2012, No. 61 vehicles
52 Law of 22 May 2004, No. 67.
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Technical regulation Reference Technical regulation on electromagnetic compatibility Resolution of 12 January 2012, No. 24 Technical regulation on safety of medical products Resolution of 1 February 2012, No. 74 Technical regulation on amending the technical regulation on Resolution of 3 February 2012, No. 83 sugar safety Resolution of the Government of the KR, technical regulation Resolution of 26 May 2012, No. 320 on safety of pharmaceuticals produced in drugstores Technical regulation on safety of non-alcoholic products Resolution of 5 July 2012, No. 474 Technical regulation on safety of iodized salt Resolution of 28 June 2012, No. 456 Technical regulation on safety of bread, bakery goods and Resolution of 17 July 12012, No. 502 macaroni Resolution of the Government of the KR, technical regulation Resolution of 2 June 2012, No. 359 on electric safety Technical regulation on safety of fortified flour Resolution of 16 August 2012, No. 569 Technical regulation on safety of medical products produced Resolution of 25 September 2012, No. 646 by pharmaceutical organizations, medical organizations and on sanitary regime of pharmaceutical organizations Technical regulation on safety of children clothing and Resolution of 10 October 2012, No.704 footwear Technical regulation on safety of infant food Resolution of 23 November 2012, No. 792 Technical regulation on safety of furniture Resolution of 30 November 2012 Technical regulation on safety of water, gas, electric and Resolution of 20 November 2012, No. 779 heating energy meters
Source: Information provided by the Kyrgyz authorities.
3.1.10.3 Conformity assessment
3.83. Accreditation of certification bodies and test laboratories is performed by the Kyrgyz Accreditation Center (KAC) under the Ministry of Economy. Mandatory certification is in the form of certification and acceptance of conformity declaration. The declaration and certificate of conformity are equal in terms of the legal requirements in the territory of the Kyrgyz Republic. The Government establishes the procedures for recognizing results of mandatory conformity assessment issued by certification authorities of exporters, on the basis of multilateral or bilateral agreements, or unilaterally.
3.84. Recently, work has commenced with ILAC on a number of issues. ILAC conducted an assessment of the KAC for compliance with the ISO/IEC 17011 and IAF/ILAC А2:07/2010, and the IAF/ILAC Multilateral Mutual Recognition Arrangement Examination of the KAC's possibility of accession to the ILAC MRA as a full-fledged member is on-going.
3.85. As of January 2012, the Registry of accredited conformity assessment bodies included 14 accredited certification bodies, 79 test laboratories, 1 calibration laboratory, and 4 providers of ILCT (inter-laboratory comparison tests) programmes.
3.1.10.4 Cooperation at the regional level
3.86. During 2010-11, under the Eurasian Economic Community framework, technical regulation institutes were established under the Integration Committee for harmonization and introduction of a unified policy on technical regulations and application of common sanitary measures. The Kyrgyz Republic participates in the activities of the Technical Regulation Commission, including working groups on the development of Community technical regulations. The Kyrgyz Republic was principally involved in the development of the Eurasian Economic Community's Technical Regulation on the Safety of Bottled Water and Requirements for Natural Honey. Work on technical regulations under the Eurasian Economic Community, and on adoption of these technical regulations is currently suspended.
3.87. Work has commenced on examining any requirements on TBT for joining the Customs Union. It is expected that there would be harmonization at the level of the Customs Union on TBT issues. Work so far has indicated significant differences in certain areas, in particular with respect to procedures for certification.
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3.1.10.5 Sanitary and phytosanitary requirements
3.1.10.5.1 Overall framework
3.88. During the period under review, policy on SPS was marked by frequent changes in direction and structure and lack of a clear strategy. According to a number of studies and reports, there is a lack of compliance with internationally accepted regulations and perhaps the WTO Agreements. For example, the Government has not had a WTO enquiry point for a long time and has no immediate plans to establish one.
3.89. The work of the ministries and state bodies on SPS matters has been disruptive, with organizational and management changes. In 2012, the Government decided to establish a single state inspectorate for veterinary, sanitary, and phytosanitary safety but in early 2013 reversed this decision with respect to sanitary inspection.53 In February 2013, the Ministry of Health took back the functions of sanitary safety. The reason for such changes was that the combined inspectorate did not have the necessary budget, resources, or skilled personnel to carry out its work.
3.90. Furthermore, there is no clear policy with respect to SPS matters. The Ministry of Health, Ministry of Agriculture and Land Reclamation, and the joint Inspectorate all have roles in SPS matters but sometimes these overlap and sometimes there is a void. Moreover, even when a provision or stipulation exists in the legal framework, it may not be followed in practice. No government body is currently setting SPS trade policy, although this function appears to be responsibility of the Ministry of Agriculture and Land Reclamation (Chart 3.4).
Chart 3.4 Main bodies involved in SPS matters
Government of the Kyrgyz Republic
Ministry of Ministry of Ministry of Agriculture and Economy Health Land Reclamation
State Inspectorate on Veterinary and Phytosanitary Safety Department of Department of National Institute Sanitary and Veterinary Chemicalization of Standards and Epidemiological Department and Plant Methodology Surveillance Protection
Control over veterinary, phytosanitary controls, National certification inspection, and Control over sanitary Control over sanitary system including surveillance SPS policy inspection, controls, inspection, controls, laboratories and formulation and surveillance and surveillance certification bodies
Source: Information provided by the Kyrgyz authorities.
3.1.10.5.2 Legal framework
3.91. For several years, the legal framework and implementing regulations have been in transition. One of the main issues is that the 2004 Law on Technical Regulation formed the framework for SPS matters. Discussions on establishing an overall food law, have not come to fruition, and SPS measures are currently being implemented through technical regulations. The Kyrgyz Republic has gradually reduced the number of products subject to mandatory phytosanitary, veterinary, and epidemiological control during the past six years (Table 3.16).
53 Resolutions of 5 September 2012, No. 2265-V, and 5 March 2013, No. 109.
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Table 3.16 Main laws concerning sanitary and phytosanitary measures
Law Reference Law on technical regulations 22 May 2004, No. 67 Law of the Kyrgyz Republic on public health care 24 July 2009, No. 248 Law of the Kyrgyz Republic on veterinary 12 April 2005, No. 61 Law of the Kyrgyz Republic on plant quarantine 27 June 1996, No. 2 Law of the Kyrgyz Republic on plant chemization and Protection 25 January 1999, No. 12 Law of the Kyrgyz Republic on drinking water 25 March 1999, No. 33 Law of the Kyrgyz Republic on protection of health of citizens of the Kyrgyz 21 August 2006, No. 175 Republic from harmful impact of tobacco Resolution of the Government of the Kyrgyz Republic on approval of rules of 30 May, 2008, No. 251 organizing works on issuance of phytosanitary documents during import and export of quarantine products, issued by the state inspection on plant quarantine under the Ministry of agriculture, water economy and processing industry of the Kyrgyz Republic Resolution of the Government of the Kyrgyz Republic on state and 6 June 2003, No. 329 epidemiological control over sanitary and epidemiological wellbeing of the population by bodies and institutions of sanitary-epidemiological service of the Kyrgyz Resolution of the Government of the Kyrgyz Republic on measures on 27 July 2001, No. 376 protection of environment and health of the population from unfavorable impact of specific dangerous chemical substances and pesticides Resolution of the Government of the Kyrgyz Republic on identification of 30 December 2006, No. 901 safety measures in the area of veterinary, plant quarantine, epidemiology, sanitary and ecology Resolution of the Government of the Kyrgyz Republic on strengthening 10 June 2011, No. 297 interaction among ministries and agencies on fight with quarantine and especially dangerous infections and parasitic diseases Resolution of the Government of the Kyrgyz Republic on measures on 25 April 2006, No. 297 protection of territory of the Kyrgyz Republic from carrying-in highly pathogenic avian influenza
Source: Information provided by the Kyrgyz authorities.
3.92. SPS measures are developed by the relevant Ministry and generally follow this process:
− Analysis of the risks; − Development of the measures; − Draft measure proposed for discussion; − Continuation of development of measures based on comments and proposals received − Endorsement by other ministries and government agencies; and − Finalization of proposed measures and submission to the Government for adoption at government level.
3.1.10.5.3 Labelling
3.93. At present there is no overall legal framework for labelling requirements, and there are no labelling laws for food products. However, for certain other products, labelling requirements are set out in various items of legislation. Requirements for labeling and packaging of pharmaceuticals have been set forth in the resolution "On Safety of Pharmaceuticals for Medical Applications", and of medical goods, in the resolution "On Safety of Medical Goods".54 Furthermore a draft law is in preparation on labeling, which will be in the form of a technical regulation. The Kyrgyz Republic has recognized a need to create a system of food-product safety that would meet world standards and reduce confusion for consumers with respect to the composition, origin, manner of manufacture, consumption, and other characteristics of a food product.
3.1.10.5.4 Cooperation at the regional level
3.94. The Kyrgyz Republic has been increasingly turning towards the Eurasian Economic Community and the Customs Union for SPS matters. It has participated in an inter-governmental council was established under the Eurasian Economic Community to work on standardization, including SPS matters. However, since the establishment of the Customs Union, work on SPS
54 Resolution of the Kyrgyz Republic, 6 April 2011, No. 137 and Resolution of the Kyrgyz Republic, 1 February 2012, No. 74.
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3.2 Measures Directly Affecting Exports
3.2.1 Procedures
3.95. Export procedures to clear products through Customs, as well as payment of applicable fees, include presentation of a customs declaration and the following documentation: contract of transaction or sale; bill of lading; certificate of origin (dependent upon the export destination); customs declaration form; licence (if applicable); and permit (if applicable). According to the Customs Service, exports receive less scrutiny than imports, and the paperwork is typically dealt with rapidly. Bonded warehouses are in principle used in the case of re-exports.
3.2.1.1 Certificate of origin
3.96. Products exported from the Kyrgyz Republic generally require a certificate of origin, depending on the import criteria of the country of destination. The Chamber of Commerce of the Kyrgyz Republic is responsible for certification and issuing certificates of origin pursuant to the legislation.55 Four types of certificates are issued according to the destination or trade regime applicable (Table 3.17).
Table 3.17 Certificates of origin for exported goods
Type Applicable for Related legal framework, if applicable "A" Form Countries granting preferences Commission Regulation (EC) No. 3254/94 of 19 December 1999 amending Regulation (EEC) No. 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No. 2913/92 establishing the Community Customs Code "ST-1" Form CIS countries Agreement of 20 November 2009 on "Rules of identification of country of origin of goods in the Commonwealth of Independent States" "Original" Form Countries with non-preferential trade Customs Code, Article 33 "FEZ" Form From free economic zones Resolution of 3 November 1998, No. 715
Source: Information provided by the Kyrgyz authorities.
3.2.2 Export taxes, charges, and levies
3.2.2.1 Export taxes
3.97. The customs tariff of the Kyrgyz Republic allows for the imposition of export duties or taxes and this trade policy instrument was used many times during the last six years. There are generally no permanent export duties56 applied according to the customs tariff. However, a number of temporary export taxes have been put in place by the Government in recent years for various reasons. Many are seasonal export duties, and all have specific rates of duty. Certain commitments were made with respect to agricultural products and not imposing export taxes, as contained in the Kyrgyz Republic's Protocol of Accession.57 The majority of the export duties have been applied to all export destinations (Table 3.18).
55 Law of the Kyrgyz Republic of 13 April 1994, No. 1460-XII. 56 With the exception of paper and paperboard, waste and scrap. 57 WTO Document WT/ACC/KGZ/26, paragraph 128 of the "Report of the Working Party on the Accession of Kyrgyz Republic".
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Table 3.18 Export duties
Product HS Rate Reference Applicable Rationale dates Mineral 3101-3105 som 14/kg Resolution, 9 Feb. 2012, 15 Feb. 2012- Seasonal fertilizers No. 84 15 Aug. 2012 export duty to aid farmers Oats 1004 som 20/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of agricultural products Maize 1005 som 5/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of agricultural products Cereal straw 1213 som 10/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical and husks No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of agricultural products Swedes, 1214 som 10/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical mangolds, No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of fodder root agricultural corns products Flours, meals, 2301 som 30/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical and pellets No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of agricultural products Bran, sharps 2302 som 20/kg Resolution, 1 Oct. 2010, No. 5 Nov. 2010- Critical and other 227 and G/AG/N/KGZ/3 5 May 2011 shortage of residues agricultural products Oil-cake and 2304 som 10/kg Resolution, 1 Oct. 2010, No. 5 Nov. 2010- Critical other solid 227 and G/AG/N/KGZ/3 5 May 2011 shortage of residues agricultural products Solid waste 2306 som 10/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical resulting from No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of extraction agricultural products Vegetable 2308 som 10/kg Resolution, 1 Oct. 2010, 5 Nov. 2010- Critical materials and No. 227 and G/AG/N/KGZ/3 5 May 2011 shortage of vegetable agricultural waste products Paper and 4707 som 10/kg Resolution, 30 Sept. 2009, 16 Oct. 2009-no To stimulate paperboard, No. 610 expiry production waste and and increase scrap exports Coala 2701 US$.003 Resolution of 23 Oct. 2007, 10 Nov. 2007- To provide raw /kg No. 503 29 July 2010 materials to domestic producers and to stimulate production and export of highly processed products Golda 7108 US$2/g Resolution of 23 Oct. 2007, 10 Nov. 2007- To provide raw No. 503 29 July 2010 materials to domestic producers and to stimulate production and export of highly processed products Wheat 1001 som 15 Decree of 20 May 2008, 5 July 2008- Seasonal duty /kg No. 235 5 January 2009 Wheat or 110100 som 30 Decree of 20 May 2008, 5 July 2008- Seasonal duty meslin flour /kg No. 235 5 January 2009 Sunflower 120600 som 20 Decree of 20 May 2008, 5 July 2008- Seasonal duty seeds /kg No. 235 5 January 2009 Vegetable oil 1512 som 100/kg Decree of 20 May 2008, 5 July 2008- Seasonal duty No. 235 5 January 2009
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Product HS Rate Reference Applicable Rationale dates Recycled paper 4707 som 25 Decree of 10 March 2009, 28 March 2009- Seasonal duty or cardboard /kg No. 157 28 June 2009 Barley 100300 som 20 Decree of 10 March 2009, 28 March 2009- Seasonal duty /kg No. 157 28 June 2009 Oats 1004000000 som 20 Decree of 10 March 2009, 28 March 2009- Seasonal duty /kg No. 157 28 June 2009 Maize 1005 som 20 Decree of 10 March 2009, 28 March 2009- Seasonal duty /kg No. 157 28 June 2009 Cereal straw 1213 som 10 Decree of 10 March 2009, 28 March 2009- Seasonal duty and husks /kg No. 157 28 June 2009 Feed crops 1214 som 10 Decree of 10 March 2009, 28 March 2009- Seasonal duty (hay, alfalfa, /kg No. 157 28 June 2009 clover, etc.) Flours and 2301 som 30 Decree of 10 March 2009, 28 March 2009- Seasonal duty meals /kg No. 157 28 June 2009 Bran, sharps 2302 som 20 Decree of 10 March 2009, 28 March 2009- Seasonal duty and other /kg No. 157 28 June 2009 residues Oil-cake and 2304 som 10 Decree of 10 March 2009, 28 March 2009- Seasonal duty other solid /kg No. 157 28 June 2009 residues Solid waste 2306 som 10 Decree of 10 March 2009, 28 March 2009- Seasonal duty resulting from /kg No. 157 28 June 2009 the extraction of vegetable fats or oils Vegetable 2308 som 10 Decree of 10 March 2009, 28 March 2009- Seasonal duty waste, /kg No. 157 28 June 2009 vegetable residues and by-products Raw hides and 4101 US$0.2 Decree of 23 October 2007, 10 Nov. 2007- To provide raw skins of bovine /kg No. 503 29 July 2010 materials to animalsa domestic producers and to stimulate production and export of highly processed products Raw hides and 4102 US$0.2 Decree of 23 October 2007, 10 Nov. 2007- To provide raw skins of sheep /kg No. 503 29 July 2010 materials to or lamba domestic producers and to stimulate production and export of highly processed products Other raw hides 4103 US$0.2 Decree of 23 October 2007, 10 Nov. 2007- To provide raw and skinsa /kg No. 503 29 July 2010 materials to domestic producers and to stimulate production and export of highly processed products Woola 5101 US$0.5 Decree of 23 October 2007, 10 Nov. 2007- To provide raw /kg No. 503 14 April 2009 materials to domestic producers and to stimulate production and export of highly processed products
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Product HS Rate Reference Applicable Rationale dates Fine or coarse 5102 US$0.5 Decree of 23 October 2007, 10 Nov. 2007- To provide raw animal haira /kg No. 503 14 April 2009 materials to domestic producers and to stimulate production and export of highly processed products Waste of wool 5103 US$0.02 Decree of 23 October 2007, 10 Nov. 2007- To provide raw or of fine or /kg No. 503 14 April 2009 materials to coarse animal domestic haira producers and to stimulate production and export of highly processed products Garnetted stock 5104 US$0.02 Decree of 23 October 2007, 10 Nov. 2007- To provide raw of wool or of /kg No. 503 14 April 2009 materials to fine or coarse domestic animal haira producers and to stimulate production and export of highly processed products Wool and fine 5105 US$0.6 Decree of 23 October 2007, 10 Nov. 2007- To provide raw or coarse /kg No. 503 14 April 2009 materials to animal hair, domestic carded or producers and combeda to stimulate production and export of highly processed products Yarn of wool, 5106 US$0.6 Decree of 23 October 2007, 10 Nov. 2007- To provide raw cardeda /kg No. 503 14 April 2009 materials to domestic producers and to stimulate production and export of highly processed products Lead waste and 7802 US$0.005 Decree of 23 October 2007, 10 Nov. 2007- To provide raw scrapa /kg No. 503 29 July 2010 materials to domestic producers and to stimulate production and export of highly processed products a According to the Decree, export duties were not applicable when exporting to CIS country destinations. Source: Information provided by the Kyrgyz authorities.
3.2.2.2 Other taxes on exports
3.98. The customs clearance fees that are applied to imports apply equally to exports at the rate of 0.15% or 0.30% depending on the situation (Section 3.1.5.1). In addition, the sales tax is applicable to exports (Section 3.1.5.4).
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3.2.3 Export prohibitions, restrictions, and licensing
3.2.3.1 Export prohibitions
3.99. The products subject to general import prohibition, (section 3.1.6) are also prohibited from exportation. In addition, the Kyrgyz Republic invoked export bans during the review period, often on a temporary basis. According to the authorities, these prohibitions served to control price fluctuations, prevent re-exports, and alleviate shortages in the domestic market (Table 3.19).
Table 3.19 Export prohibitions
Product HS Prohibition Reference Applicable dates Notes Light fuels 2710 12, 2710 Ban Decree No. 1694 28 December 2012- Ban on re- oils and 19210-2710 28 December 2012 28 June 2012 exports petroleum 19250, 2710 products 19420, 2710 19480, 2710 20110-2710 20190, 2710 20900 (except 2710 12210, 2710 12250) Petroleum 2710111100- Ban and special Resolution No. 218 30 March 2012- Temporary products 2710119000, customs 29 March 2012, 29 March 2013 ban to 2710191100- procedures alleviate 2710191500, requiring critical 2710192500- customs escort shortages 2710192900, and convoy and rising 2710193100, consisting of prices 2710194900 not less than 10 vehicles equipped with GPS Wheat and 1001, 1101 Ban Resolution No. 631 12 Oct. 2012- To avoid meslin, 25 September 2012, 11 April 2013 critical including shortages flour and rising prices
Source: Information provided by the Kyrgyz authorities.
3.2.3.2 Export licences
3.100. The rules and procedures for import licences (section 3.1.6), also apply to export licences. Currently, export licences are required for 19 products (Table 3.20).58
Table 3.20 Products subject to export licensing
Product HS codes Licensing Operational Rationale Body Ministry Live animals 010600990 Ministry of Ministry of Agriculture .. Economy and Land Reclamation Medicines of plant origin 1211, 1301, Ministry of Ministry of Agriculture .. 1302 Economy and Land Reclamation Decyphering/Cryptographic 8471, Ministry of State Committee for Security tools, equipment, software, 847330000, Economy National Security devices 854390900 Weapons and military Not provided in Ministry of Ministry of Defence Security equipment the law Economy Defence materials and Not provided in Ministry of Ministry of Defence Security related protection devices the law Economy Military uniforms and Not provided in Ministry of Ministry of Defence Security clothing the law Economy
58 Kyrgyz law of 14 February 1998 No. 13 and 18 January 2001, No.13.
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Product HS codes Licensing Operational Rationale Body Ministry Normative documents for Not provided in Ministry of Ministry of Defence Security military the law Economy Ammunition 9306 Ministry of Ministry of Defence Security Economy Gunpowder, explosives, 3601, 3602, Ministry of the State Agency for Security pyrotechnics 3603, 3604 Interior Geology and Mineral Resources Nuclear materials 2612, 2844, Ministry of Ministry of Defence, Security, 2845, 8401, Economy National Academy of implement 2803 Sciences, State Agency international on Environmental obligations Protection and Forestry Equipment and technology, Not provided in Ministry of Ministry of Defense, Security, having a dual use, which can the law Economy National Academy of implement be used for mass destruction Sciences, State Agency international on Environmental obligations Protection and Forestry Raw materials for weapons Not provided in Ministry of Ministry of Defence Security, and military technology the law Economy implement international obligations Precious metals, alloy 2616, 2843, Ministry of Ministry of Finance Security metals, clad, ores, 7106-7112 Economy concentrates, waste and scrap Non-ferrous metal waste 7404,7503, Ministry of Ministry of Industry .. and scrap 7602, 7802, Economy 7902, 8002, 8101-8112 Narcotic substances Not provided in Department for Ministry of Health .. the law psychotropic substances Potent poisons Not provided in Ministry of Ministry of Health, Security, the law Economy National Academy of implement Sciences, State Agency international on Environmental obligations Protection and Forestry Hazardous waste Basel Convention Ministry of Ministry of Health, State Protect the list on the control Economy Agency on environment of trans- Environmental Protection boundary and Forestry movement of dangerous goods Official and civilian arms Not provided r Ministry of the Ministry of the Interior Security in the law Interior Ozone depleting substances Lists of the Ministry of State Agency on Protect the Vienna Economy Environmental environment Convention on Protection and Forestry the protection of the ozone, and the Montreal Protocol on substances that deplete the ozone layer
.. Not available. Source: Information provided by the Kyrgyz authorities.
3.2.3.3 Export controls
3.101. Laws and regulations on export controls date from 2003 and were established in order to protect the interests of the Kyrgyz Republic, implement requirements of international agreements on non-proliferation of weapons of mass destruction, and facilitate the integration of the Kyrgyz Republic in the world economy (Table 3.21). The Kyrgyz export control policy is part of the internal and foreign policy of the country and implemented in order to provide state security, including protecting its political, economic, and military interests.
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Table 3.21 Laws and procedures on export controls
Law Reference Summary Law on export control Law, 23 January 2003, No. 30 Main law on export controls Measures for implementing Resolution, 4 May 2004, No. 330 Procedures for control, uniform the national export control conditions, and filling out of export system in the Kyrgyz licences Republic Agreement on common Law, 22 December 2005, No. 167 Kyrgyz law implementing the export control of the Eurasian Economic Community Eurasian Economic agreement Community Regulation of the Order, 27 October 2010, No. 257 Revised regulations on the export implementation of export control system in the Kyrgyz control Republic Procedure for issuing permit Resolution, 4 May 2004, No. 330 How to obtain permits for transit for the transit of goods through the territory of the Kyrgyz subject to export control Republic of goods subject to export control
Source: Online information viewed at: http://mineconom.kg/index.php?option=com_content&view =category&layout=blog&id=78&Itemid=171&lang=ru; and information provided by the Kyrgyz authorities.
3.102. The list of products subject to export control is harmonized with international non- proliferation regimes and in accordance with the common export control list of the Eurasian Economic Community (Table 3.22).
Table 3.22 Export control list
Appendix Reference Chemicals, equipment and technologies that can be used in the Decree of 6 February 1996, No. 55 production of chemical weapons Nuclear materials, equipment, special non-nuclear materials and Decree of 6 February 1996, No. 55 associated technologies Dual-use equipment and materials and associated technologies used Decree of 6 February 1996, No. 55 for nuclear purposes Equipment, materials, and technologies that can be used in the Decree of 6 February 1996, No. 55 production of missile weapons
Source: Online information viewed at: http://mineconom.kg/index.php?option=com_content&view =category&layout=blog&id=78&Itemid= 171&lang=ru; and Decree of 6 February 1996, No. 55.
3.103. Export control is carried out through the submission of an end-use certificate and a written commitment by the foreign purchaser that the goods will not be used for weapons of mass destruction. The Ministry of Economy issues these certificates.
3.2.4 Duty and tax concessions, subsidies, EPZs, and export-performance requirements
3.104. The Kyrgyz Republic does not subsidize exports or maintain export performance requirements. Tax concessions for special regimes such as free economic zones (section 3.1.1.5), VAT (section 3.1.5.2), high technology parks (section 3.3.2.2), and textiles (section 2.3.2) are discussed elsewhere.
3.2.5 Export operations of state enterprises, monopolies
3.105. In accordance with the Presidential Decree "On strengthening State control over collecting, purchasing, sales and exports (re-exports) of scrap and wastes of ferrous and non-ferrous metals in the Kyrgyz Republic"59, a state monopoly was created for the collection, purchase, processing and selling scrap and wastes of ferrous and non-ferrous metals. Exclusive rights were given to GP to purchase and export the scrap and wastes "Temir". Following a change in the decree from 2013, the monopoly on the collection and purchase is no longer in place.
59 Kyrgyz Decree, 18 August 2000, No. 213.
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3.2.6 Export finance, insurance, and guarantees
3.2.6.1 Export finance
3.106. There are currently no government agencies or banks providing export finance or export guarantees. However, the Government anticipates initiatives in the near future. The National Export Strategy has identified "access to finance" as a cross-sectoral issue in need of improvement in order to create a better environment for growth of exports. In particular, it identified the lack of access to export finance as the second most important obstacle for companies hoping to export.
3.107. The Programme for the Development of the Manufacturing Sector for the Kyrgyz Republic for 2013-15, includes a section on the development of financial institutions.60 In particular, there is a recognized need for two institutions to promote and increase industry and exports: a development bank or development fund to provide funds for long-term use; and an export-import credit institution to provide short-term loans to companies engaged in import-export operations.
3.108. A number of donor organizations have initiatives to improve access to finance, including trade finance. The World Bank’s IFC has been active in improving the microfinance industry and regulations, as well as through its Global Trade Finance Program, which helps banks develop new trade finance products.
3.2.6.2 Export insurance
3.109. Discussions on establishing a government-backed export insurance and guarantee organization have not been fruitful, although this issue has been identified as a barrier to exports. While there is potentially a role for the private sector in export insurance, the lack of a good capital base leaves the Kyrgyz banks as the only suppliers. Furthermore, there is no re-insurance, either by the State or private sector. Foreign export insurers are not an option as a restriction on selling insurance requires establishment in the Kyrgyz Republic.
3.2.7 Export promotion and marketing assistance
3.2.7.1 Export Development Strategy
3.110. In mid-2012, with the help of the ITC and international development agencies, the Ministry of Economy led the initiative to develop a national export development strategy. Further consultations were held in autumn 2012 and early 2013, to bring together stakeholders in the public and private sectors to develop the strategy. The Export Development Strategy is an objective under the National Strategy for Sustainable Development for 2013-17.61
3.111. The four key strategic objectives are to: provide export-targeted socio-economic development for all citizens of the Kyrgyz Republic create and develop the Kyrgyz Republic as a regional leader in the business environment; enhance the capacity of enterprises to adapt to the demands of international markets, in particular in terms of quality and capacity; and strengthen the capacity of trade support institutions to provide efficient and effective support.
3.112. Development of the strategy involved the examination of 16 sectors or product groups, based on four criteria: current conditions; export performance; trends in world markets; and impact on socio-economic development. As a result, six product-specific sectors were selected for improved export performance: textiles and clothing; bottled water; tourism; fruit and vegetables (fresh and processed); meat (fresh and processed); and milk and dairy. Four cross-cutting functional issues were included so as to improve core business areas related to export: quality management; trade information and promotion; access to finance; and trade facilitation (transportation, logistics, and documentation).
3.113. Working groups have created a plan of action for each sector, and input from different regions of the Kyrgyz Republic has been incorporated. After endorsement by high-level
60 Online information viewed at: http://www.gov.kg/wp-content/uploads/2013/03/Programma.Decree of13February2013,No.70. 61 Kyrgyz Government Resolution, 25 January 2012, No. 55.
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- 61 - government officials, the strategy envisions a Coordinating Council to monitor and implement the strategy.
3.2.7.2 Export Promotion
3.114. Currently, there is no dedicated government organization for export promotion. The area is underdeveloped, and information is spread among various ministries. A priority component of the National Export Strategy is to improve trade information and promotion. The plan of action for this cross-cutting issue calls for the creation of a trade promotion organization; preliminary work to establish the organization is under way.
3.3 Measures Affecting Production and Trade
3.3.1 Legal framework for businesses including registration and licensing
3.3.1.1 Types of business entities
3.115. The most common type of business entity is the private entrepreneur followed by the limited liability company. Foreign and domestic persons may conduct business under all the types of business entities. Branches or representative offices allow foreign companies to establish without creating a separate legal entity. However, there are certain restrictions. A representative office is restricted to only representing the foreign entity and the entity may not be licenced to perform certain activities. The limited liability company allows for the creation of a separate legal entity in which the participants are only liable for losses up to the level of their contribution. Private entrepreneurs may carry out business activities on the basis of a state registration certificate or patent (Table 3.23).
Table 3.23 Types of business entities
Type Number of entities Information as of January 2013 Limited liability company (LLC) 8,968 Flexible company type; minimum capital of Som100; limited liability; may engage in any type of activity Joint-stock company (JSC) Minimum capital of Som100,000 -open joint-stock company 541 Unlimited number of shareholders; elaborate disclosure requirements; shares may be openly traded -closed joint-stock company 271 Maximum of 50 shareholders; no publishing of accounts Partnerships 44 At least two participants, with or without a separate legal entity; gains or losses apportioned based on contributions Private entrepreneurs/sole tradersa 234,429 Simple, non-corporate entity Branches and representative offices 1,176 No separate legal entity established as the of foreign companies property of the foreign company a Excluding peasant farmers. Source: Kyrgyz Stat online. Viewed at: http://stat.kg/images/stories/docs/Classifikator/EGRSE/Hoz. sub.OPF II. 2013.xls; and information compiled by the WTO Secretariat.
3.3.1.2 Business climate
3.116. According to the World Bank, the Kyrgyz Republic ranks 70th out of 185 economies, for ease of doing business. It fell one position from 69th in 2012, and although not directly comparable, was ranked 90th of 175 in 2007.62 While there have been many positive developments in the Kyrgyz business climate, such as simplifying tax payments, improvements are being sought for corruption, provision of adequate electricity, and access to finance.
62 Online information, viewed at: http://www.doingbusiness.org/rankings.
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3.3.1.3 Business procedures
3.117. The law on Licences for import and export (3.1.6.3) is also applicable for certain business activities. Some types of businesses involved in production, activities, and services are subject to licensing. These include, production and distribution of alcoholic beverages, production and sale of drugs and medicines, construction of dams, private medical and veterinary practices, banking and insurance activities, operation of gambling establishments, etc.63 Licences are issued by the government body responsible for the licensing activity. Licences are generally unrestricted, but restrictions may be imposed for state monopolies, national security, law enforcement, or other protection.
3.118. Businesses that are established as separate legal entities require registration with the Government. The Kyrgyz Republic established a one-stop-shop for registration of entities. After filing the necessary paperwork, registration is within three business days.
3.119. Pursuant to the Law on Procedures for Conducting Inspections of Business, businesses are subject to inspection by authorized government bodies to ensure compliance with laws and regulations. The law sets out the procedures for conducting inspections, including the rights of the parties; inspections may be: scheduled, un-scheduled, cross-inspections, control inspections, and re-inspections.
3.120. Private-sector organizations have noted business inspections are an area of concern. In 2012, two government resolutions were passed to improve the situation: one introduced risk- assessment criteria and degrees of risk in order to reduce inspections; the second reduced the number of competent government bodies authorized to conduct inspections from 21 to 12.64 In 2012, 13,507 business inspections were carried out; 78% were scheduled inspections. This was a significant decrease from the 24,409 inspections of 2011. Inspections in 2012 resulted in fines of Som58.2 million, and 38 cases were reported to law enforcement agencies.
3.3.1.4 Legal framework
3.121. There are a number of laws governing the business environment in the Kyrgyz Republic (Table 3.24).
Table 3.24 Main laws governing business
Law Reference Law on concessions and foreign concessionaire entities Law of 6 March 1992, No. 850-XII Law on joint stock companies Law of 27 March 2003, No. 64 Civil Code Law of 8 May 1996, No. 15 Law on bankruptcy (insolvency) Law of 15 October 1997, No. 74 Law on pledge Law of 12 March 2005, No. 49 Law on the securities market Law of 24 July 2009, No. 251 Law on state service for regulation and supervision of the financial Law of 24 July 2009, No. 249 market Law on investment funds Law of 26 July 1999, No. 92 Tax Code Law of 17 October 2008, No. 230 Law on optimizing the regulatory and legal framework regulating Law of 5 April 2008, No. 55 entrepreneurial activity Law on public-private partnerships Law of 22 February 2012, No. 7 Law on streamlining legislative framework for regulation of Law of April 2008, No. 55 entrepreneurial activities Law on procedures for conducting inspections of business Law of 25 May 2007, No. 72 Law on the optimization of the legal framework regulating business Law of 5 April 2008, No. 55 activities
63 Non-exhaustive list. 64 Resolution of 18 February 2012, No. 108 and Resolution of 19 April 2012, No. 1854.
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Law Reference Law on improving public policy in the area of business regulation Decree of 9 December 2008, No. 435 Law on the moratorium on inspections carried out by the tax service of Decree of 22 April 2008, No. 145 the Kyrgyz Republic, and reducing the number of inspections of businesses conducted by other competent supervisory authorities of the Kyrgyz Republic Source: Information compiled by the WTO Secretariat.
3.3.1.5 Small and medium-sized businesses
3.122. The national sustainable development strategy for 2013-17 contains provisions on small and medium-size enterprise (SME) development. These enterprises account for approximately 40% of GDP but their development is far below potential. Problems such as corruption, bureaucratic procedures, and unjustified inspections are cited as barriers.
3.123. The strategy sets out four tasks to be achieved in order to create an enabling environment for SMEs: strengthening the legislation on security of private property; deducing government interference in business regulation; providing financial, loan, and insurance support to enterprises; and becoming a top-30 country in the Doing Business rankings.
3.3.2 Incentives, subsidies, and other government assistance
3.3.2.1 General incentives
3.124. The Kyrgyz Republic has certain tax schemes that provides tax relief to certain entities. In addition to VAT and excise tax exemptions (section 3.1.5), tax incentives or support are provided to certain sectors such as textiles (section 2.3.2), high technology parks, and free economic zones (section 3.1.1). The agriculture sector, i.e. producer, commodity, and service cooperatives are all exempt from sales tax and profit tax (section 4.1.3).
3.3.2.2 High technology parks
3.125. A special tax regime was put in place in 2011 to create high technology parks65; however, no high-tech parks are currently in operation. Residents of the park, that meet the requirements, are exempt from revenue tax, sales tax, and VAT. There is also a special income tax rate of 5% for employees and boards of directors of Park residents.
3.3.2.3 Subsidies
3.126. No direct subsidies are known to be granted to industry or agriculture by the Kyrgyz Government. However, privileges or special treatment are accorded to certain industry sectors, often with the aim of promoting or further developing that industry.
3.127. For example, a government resolution was passed in 2012 on measures of state support for textiles, apparel, and furniture.66 In order to enhance competitiveness and improve the export potential, the resolution provides for the exemption of the customs clearance fee for machinery used directly by the businesses in their own productive capacity. Approximately 25 tariff lines of textile machinery are eligible.
65 Chapter 59 of the Tax Code. 66 Kyrgyz Government Resolution, 26 March 2012, No. 204.
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3.3.3 Government Procurement
Table 3.25 Overview of procurement, 2011
Government agency Government enterprise and Sub-central procurement joint-stock company (with (local/municipal) more than 50% government procurement share) procurement No. of tenders 2,464 1,185 503
Total value som 5,311,651,200 som 7,700,627,900 som 2,777,845,400 procured
Thresholds Budget funded Same as for government organisations: agency if authorized capital is < Goods and services: som 100 million, otherwise min. som 500,000 max. som 1,500,000
State entities: Goods, works, and services: Works: Min.: som 2 million Min.: som 500,000 Max.: som 10 million Max.: som 2,000,000
Main law Public Procurement Law, Public Procurement Law, Public Procurement 24 May 2004, as amended 24 May 2004, as amended Law, 24 May 2004, as amended
Source: Compiled by the WTO Secretariat, based on "Public Procurement in the Kyrgyz Republic 2011". Viewed at: http://zakupki.okmot.kg/documents.action?type=2 [in Russian only].
3.3.3.1 Structure
3.128. Until 2009, procurement at the central level was handled by the State Agency for Public Procurement and Material Reserves. Pursuant to a Decree of the President, this agency was liquidated and the public procurement methodology, procedures, and training functions were later delegated to the Ministry of Finance.67 Based on the procurement laws and regulations, the Ministry prepares and publishes the detailed rules of public procurement, including the manual, instructions, and documents; informs the public about possible changes in procedures; collects, analyses, and publishes information on public procurement; develops and maintains information on web portals; and ensures openness and transparency in the procurement process. In 2011, there were approximately 2,145 entities used the public procurement process.68
3.3.3.2 Main elements of the procurement law
3.129. The Public Procurement Law was introduced in 2004 and has been amended several times. It covers procurement of all goods, works, and services by government agencies, agencies, foundations, local governments, state and municipal enterprises, and joint-stock companies in which the State owns more than a 50% share. The five basic types of tendering processes are: open tenders, used for over 80%; request for quotations; limited tendering; single-source; and two-stage tenders.
3.130. In principle, foreign bidders are allowed to participate on an equal basis in the procurement process; however, this is undermined by provisions elsewhere in the procurement law. In evaluating bids, a procuring entity may give a 20% preference to domestic goods. For works, there is the provision of using local labour and not less than 30% of domestic raw materials. However, in the past four years, there has been no application of this provision.
67 There was a gap of several months during which procurement was not assigned. Kyrgyz Decree of 26 October 2009, No. 425 and Regulation of 4 December 2009, No. 733. 68 "Public Procurement in the Kyrgyz Republic 2011".
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3.3.3.3 Recent developments and future initiatives
3.131. In 2010, the Kyrgyz Republic launched e-procurement in order to improve the efficiency of government procurement processes through automation, to increase transparency, and to transition the Government to electronic processes. During the first quarter of 2013, e-procurement was used in over 1,000 tenders with a total value of som 17 billion. However, e-procurement is at an embryonic stage. Even though all information can be downloaded electronically, tenders are not yet performed through a secured electronic portal. The government plans to complete this undertaking in the future.
3.132. The Government approved a public procurement strategy for 2012-2014, including a phased plan for the development of public procurement. In particular, it reinforces the importance and development of e-procurement, and recognizes the need for further improvements in the regulatory and legal framework governing public procurement and the importance of transparency in the procurement system.
3.133. According to the authorities, work is under way to reduce the involvement of state agencies in the procuring process. The Tender Commission will assess bids and eventually award a contract. They will be the first to consider appeals, and will take a final decision. It is envisaged that no contract will be signed unless all appeals are settled. A period of 10 days will be given for filing an appeal.
3.3.3.4 Kyrgyz Republic and the GPA
3.134. As part of its accession protocol, the Kyrgyz Republic agreed to pursue membership in the GPA. In 1999, it submitted an application and became an observer in the Committee on Government Procurement, and in 2002 it submitted an offer. Questions and responses were exchanged with GPA parties during 2002-03. However, since that time the only development has been an updated checklist of responses by the Kyrgyz Republic in 2009, and the process has stagnated. It is unclear whether the Kyrgyz Republic will pursue its accession to the GPA. Officials indicate that it is difficult to determine when the process of accession to the GPA would be resumed.
3.3.4 Intellectual property rights
3.135. During the review period, a number of laws and resolutions were passed and a national strategy on intellectual property and innovation was developed.
3.3.4.1 Legal framework
3.136. A number of laws have been adopted mainly to improve legal protection for intellectual property, in particular:
− Law of the Kyrgyz Republic "On introducing changes and additions to the Civil Code of the Kyrgyz Republic", which stipulates amendments aimed at removing inconsistencies in the effective legislation on intellectual property and granting additional rights to trademarks owners, in particular, right to pledge exclusive rights69;
− Laws of the Kyrgyz Republic "On introducing changes and additions to the Law of the Kyrgyz Republic On Copyright and Related Rights", which introduced amendments on supplementing the exclusive rights of authors and owners of related rights with other rights (Internet rights70);
− Law of the Kyrgyz Republic "On introducing changes and additions to the Law of the Kyrgyz Republic Patent Law", which provides for additional rights to trademark owners, in particular, the pledge right and post-use right.71
69 Law of 24 January 2013. 70 Law of 5 August 2008, No. 197 and 27 June 2011, No. 58. 71 Law of 26 December 2012.
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3.137. In addition, measures are being undertaken to improve the efficiency of intellectual property rights protection. The Law of the Kyrgyz Republic "On introducing changes and additions to the Customs Code of the Kyrgyz Republic" improved provisions of the Customs Code in terms of protection intellectual property rights when moving goods across the customs border.72 Changes to the Criminal Code increased the fines for offences.73
3.138. The main laws on IP are supported by more than 100 regulations and related rules (Table 3.26). The Kyrgyz Republic adheres to 23 multilateral IP treaties, and a number of bilateral agreements on IP.
Table 3.26 Main intellectual property laws
Law Date/Reference Civil Code of the Kyrgyz Republic (part II, Section 5 "Intellectual Property") 1 March 1998 Criminal Code of the Kyrgyz Republic (article 150, Infringement of copyright, related 1 January 1998 rights and patent rights, Article 191, Illegal use of trademark Code of the Kyrgyz Republic on Administrative Liability (Chapter 25, Administrative 1 January 2005 offences infringing intellectual property) Customs Code of the Kyrgyz Republic (Section IX, Protection of intellectual property 4 February 1998 rights by customs bodies) Patent Law 4 February 1998 Law on trademarks, service marks and appellations of places of origin of goods 28 February 1998 Law on copyright and related rights 23 February 1998 Law on legal protection of computer programs and data bases 4 April 1998 Law on legal protection of topologies of integrated circuits 10 April 1998 Law on commercial secret 10 April 10 1998 Law on legal protection of breeding achievements 26 June 1998 Law on service inventions, utility models and industrial designs 13 August 1999 Law on firm names 31 December 1999 Law on patent attorneys 28 February 2001 Law on secret inventions 31 March 2006 Law on protection of traditional knowledge 7 August 2007 Regulation on procedure of customs control over goods containing objects of intellectual 27 November 2000 property
Source: Information provided by the Kyrgyzpatent.
3.3.4.2 Framework
3.139. Kyrgyzpatent, the state service for Intellectual Property and Innovations, under the Government, implements intellectual property policy in the Kyrgyz Republic. The responsibilities of Kyrgyzpatent include developing the legislative framework aimed at protecting intellectual property rights and granting rights to IP objects. Enforcement of intellectual property rights is under the competence of other state entities such as law enforcement, Customs, and judicial bodies. Kyrgyzpatent is engaged in drafting and improving the legal framework on IP protection.
3.3.4.3 Kyrgyz IP strategy
3.140. By virtue of a government resolution, the National Strategy for Development of Intellectual Property and Innovations in the Kyrgyz Republic for 2012-2016 was approved in 2011.74 Under the framework of the strategy the following priority areas have been identified: creating favorable conditions for the development of innovative activity and use of IP objects; promoting modernization of the economy by intensifying transfer of advanced technologies; raising awareness of the general public to the role and value of IP; and creating of an efficient system of IP protection.
3.141. The strategy seeks to establish a strong economy based on knowledge, encourage investments in innovation, and promote entrepreneurship. Further improvements are envisioned in
72 Dated 5 August 2008, No. 196. 73 Law of 29 February 2009, No. 58 introduced amendments to Article 150 of the Criminal Code. 74 Kyrgyz Resolution, 23 September 2011, No. 593.
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- 67 - the legal and normative bases, improvement of procedures for legal protection for IP subject matters, and raising the overall level of IP protection.
3.3.4.4 IP enforcement
3.142. Infringement of IPRs, i.e. production, importation, and exportation of counterfeit goods, as well as sale of counterfeit goods has become a key problem for the Government, businesses, and consumers in the Kyrgyz Republic. It is recognized that special attention is required for anti-piracy measures with respect to audio, video, software, and counterfeit trademarks.
3.143. Kyrgyzpatent has developed draft resolution on procedures to suspend release of goods containing IP objects not included in the customs registry, in order to implement Article 349 of the Customs Code. The plan of activities to implement the objectives of the national strategy for 2012- 13 approved procedures to improve the system of IP protection, in particular, copyrights and related rights, and decrease the amount of counterfeit goods.75 In addition, six other draft laws have been prepared to deal with enforcement issues.
3.144. Furthermore, Kyrgyzpatent provides consultations, and organizes workshops, seminars, and meetings for representatives of law enforcement bodies, authors, right holders, and users of IP on a regular basis. During 2006-12 representatives of Kyrgyzpatent took part in various court proceedings, including at the Supreme Court of the Kyrgyz Republic, inter-district courts on economic cases, as well as various courts of general jurisdiction (Tables 3.27 and 3.28).
Table 3.27 Objections filed and their consideration by the Appeals Council, 2006-12
No. of objections filed No. of objections considered Inventions 4 3 Trademarks 39 39 Firm names 3 3 Total 46 45
Source: Information provided by the Kyrgyzpatent.
Table 3.28 Court proceedings on IP, 2006-12
Types of claims Filed Judgment Judgment in Appealed Judgment in favor of favor of plaintiff respondent On repeal of non-normative act 3 1 1 1 issued by the state body On early termination of protection 46 20 12 8 6 of trademark due to non-use On repeal of non-normative legal 26 7 16 3 .. act issued by the state body (decisions of the Appeals Council and decision of expert examination) Claims against actions of officials of 2 2 Kyrgyzpatent On coercive execution of the 80 79 .. .. 1 licensing agreement with Kyrgyzpatent on the right to use copyright and related rights objects On collection of author’s royalty 48 39 1 3 5 Total 205 146 32 15 12
.. No cases. Source: Information provided by the Kyrgzypatent.
3.3.4.5 Use of IP
3.145. Analysis of IP trends for 2007-12 demonstrates relative stability, although there was a decrease in the number of patent applications. This reflects lack of production capacity in the manufacturing sector and the political instability during the period. The low level of patent filings
75 Kyrgyz Resolution, 23 September 2011, No. 593.
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3.146. At present, trademarks dominate intellectual property filings and registration in the Kyrgyz Republic, under the national procedure, which has increased since 2010, and the Madrid system registration.
3.147. The trends for the registration of breeding achievements reflect the unstable nature of this area. One of the main problems is insufficient interest by R&D institutes in the area of land use, livestock and pastures to receive legal protection for their efforts, which often result in unauthorized use of the achievements by third parties. Copyright has generally seen significant growth, more than doubling since 2007 (Table 3.29).
Table 3.29 Trends in intellectual property, 2007-2012
2007 2008 2009 2010 2011 2012 Inventions (number of applications) 158 138 149 140 129 111 Utility models (number of applications) 17 7 12 16 10 17 Industrial designs (number of applications) 12 22 19 16 25 36 Innovation proposals (number of applications) 78 56 87 76 41 72 Trademarks (number of applications) 615 750 646 682 724 703 International registration of trademarks 4,647 4,844 4,123 4,147 4,342 4,901 Breeding achievements (number of applications) 5 1 2 7 2 1 Copyright (number of applications) 135 237 233 233 224 289
Source: Information provided by the Kyrgyzpatent.
3.3.5 Role of state-owned enterprises, state monopolies, and privatization
3.148. The Kyrgyz Republic began privatization of public enterprises after independence in the early 1990s. The process is ongoing. The first stage included small privatization, i.e. privatization of entities in services, trade, and housing and construction. The next stage comprised share sales of large and medium-sized state enterprises in manufacturing, transport, and construction. During the third stage, priority was given to transforming large strategic entities of monopolized economic sectors, privatization of insolvent or bankrupt enterprises, and completion of coupon privatization. Entities in other areas such as utilities and housing, health resorts and recreational, sports, tourism, and similar areas, were also subject to privatization.
3.149. While over 70% of public sector entities have been transferred into private ownership, the State remains the owner of many strategically important enterprises in fuel and energy activities, mining, natural monopolies, and telecommunications. The State, represented by the Fund for State Property Management, is a shareholder in 59 joint-stock companies, of which 22 are strategic companies. The state owns the controlling interest of stock in 38 companies, and there are 158 state enterprises under government ministries and agencies. The process of privatization is taking place on the basis of a mid-term programme of state property privatization, i.e. a listing of state- owned objects subject to privatization.
3.150. Until 2011, the mid-term privatization programme was approved by the Government. Under June 2011 amendments to the legislation, the programme is to be approved by the parliament.76 This change was intended to ensure control, efficiency, and accountability for privatization of state property. Other key developments have included improving the transparency and openness of the process of privatization. Previously, it was the norm to privatize state property through auctions or tenders without setting the price. This resulted in corruption and sale of the state property at below-value prices. This practice was abolished in 2010. A new provision, aiming to improve transparency, included representatives of the business sector and civil society in the composition of the commission on privatization and assessment of strategic objects.
76 Law dated 23 June 2011, No. 54 on "Introducing Changes and Additions to the Law of the Kyrgyz Republic on "Privatization of State Property in the Kyrgyz Republic".
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3.151. The 2012-14 privatization programme is being implemented with the privatization of five state-owned objects.77 In recent years, there has been a significant decrease in privatization, due to the very large enterprises in strategic sectors that remain under state ownership. The current policy focuses on improving the management of state enterprises and joint-stock companies with state participation, and introducing the public-partnership mechanism.
3.152. The Kyrgyz Republic undertook a transparency commitment with respect to privatization in its WTO Protocol of Accession. In particular it committed to providing annual information for as long as its programme of privatization was in existence, and on other issues related to its economic reform as relevant to its WTO obligations.78 During the period under review, no such annual notifications were received despite the ongoing privatization.
3.153. There are several laws that regulate state-owned property (Table 3.30).
Table 3.30 Laws on state-owned property
Law Reference Civil Code of the Kyrgyz Republic Law of 8 May 1996, No. 15 (Part I, Articles 158,159, 229-231, 288) Law on Joint Stock Companies Law of 27 March 2003, No. 64 Law on Trust Management of State Property Law of 26 July 2011, No. 136 Law on Strategic Objects of the Kyrgyz Republic Law of 23 May 2008, No. 94 Law on Economic Partnership and Companies Law of 15 November 1996, No. 60 Law on Privatization of State Property in the Kyrgyz Republic Law of 2 March 2002, No. 31
Source: Information provided by the Kyrgyz authorities.
3.154. The State still has a major role in a number of significant sectors (Table 3.31).
Table 3.31 State-owned enterprises and joint-stock companies
Name Sector Reference - "Kyrgyzalko" JSC Alcohol production Order of the Ministry of Foreign Trade and Industry - "Karabaltinsky Spirit Factory" SE of the Kyrgyz Republic dated 18 February 2000, – "Karakolsky Spirit Factory" SE No. 19 on approval of the charter of "Karabaltinsky Spirit Factory" state enterprise "Kyrgyztamekisi" JSC Tobacco Resolution of the Government of the Kyrgyz Republic on "Kyrgyztamekisi" state joint-stock corporation dated 11 June 1996, No. 262 "Kyrgyz Temirzholu" SE Railways and cargo Resolution of the Government of the Kyrgyz transportation Republic on organizational issues of construction of main railway lines in the Kyrgyz Republic" dated 2 May 2008, No. 203 - "Kyrgyzstan Air Company Services of airport and Resolution of the Government of the Kyrgyz OJSC aviation Republic on establishing "Kyrgyzstan Air Company", - "Manas" International Airport open joint-stock company dated 11 January 2006, OJSC No. 9 - "Kyrgyztelekom" OJSC Telecommunication - "AlfaTelekom" OJSC - "Kyrgyzneftegaz" JSC Oil & gas - "Kyrgyzgaz" JSC» - "ElektricheskieStantsii" OJSC Power energy sector Programme for denationalization and privatization - "Chakan – GES" OJSC of "Kyrgyzenergy" joint-stock company approved by - "NationalnayaElektricheskayaset; Resolution of the Government of the Kyrgyz Kyrgyzstana" OJSC Republic on programme for denationalization and - "Vostokelektro" OJSC privatization of "Kyrgyzgosenergoholding" state - "Severelektro" OJSC joint-stock holding company dated 23 April 1997, - "Oshelektro" OJSC No. 239. - "Jalalabalelektro" OJSC "Bishkekteploset’" OJSC Power and heating energy transmission "Kyrgyzpochtasy" SE Postal services
77 Resolution of 25 April 2012, No. 1877-V. 78 WTO Document WT/ACC/KGZ/26, paragraph 14 of the "Report of the Working Party on the Accession of Kyrgyz Republic".
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Name Sector Reference - "Ayil Bank" OJSC Banking Resolution of the Government of the Kyrgyz - "RSKBank" OJSC Republic on transformation of "AyilbankKyrgyzskayaselskolhozyastvennayafinanso vayacorporatsiya" closed-type joint-stock company into "Ayilbank" open joint-stock company dated 11 November 2004, No. 832
Resolution of the Government of the Kyrgyz Republic and the National Bank of the Kyrgyz Republic on transfer of 100% of shares of "Raschetno-sberegatelnayakompaniya" open-type joint-stock company from the National Bank of the Kyrgyz Republic to the Government of the Kyrgyz Republic dated March 28, 2003, No. 171 "Kyrgyzaltyn" OJSC Gold mining Resolution of the Government of the Kyrgyz Republic on transformation of "Kyrgyzaltyn" Kyrgyz State Concern dated 29 September 1999, No. 528
Source: Information provided by the Kyrgyz authorities.
3.155. Many state entities operate under the Law on Natural and Permitted Monopolies. (Table 3.32) This law aims at balancing the interests of consumers by providing products, works, or services while allowing for the effective functioning of natural and permitted monopolies.79 The law establishes a state registry of natural and permitted monopolies that are subject to state regulation and control. Under the law, regulation may be in the form of price regulation, including for exports; limits on profitability; value of trade allowances; identification of customers subject to mandatory services; and obligations for technical and engineering services. The dominant method is price-based. The full list of entities considered natural or permitted monopolies includes over 200 entities at the state and regional levels.80 Regional monopolies are mainly in the water, waste, and transport sectors, while those at the state level are concentrated in the energy, heating, alcohol, and transport.
Table 3.32 State-owned enterprises and joint-stock companies included in the Registry of Natural and Permitted Monopolies
Enterprise Sector Method of regulation "Kyrgzalkal" Alcohol Price-based Tobacco Price-based "Kyrgyz Temir Jolu" Railway and cargo transport Price-based "Elektricheskiestantsii" OJSC Electric and heating power production Price-based "Natsionalnyeelektricheskiestantsii Electric energy transmission Price-based Kyrgyzstana" OJSC "Severelektro" OJSC Sale and distribution of electric energy Price-based "Oshelektro" OJSC Price-based "Vostokelektro" OJSC Price-based "Jalalabatelektro" OJSC Price-based "Chakan-GES" OJSC Electric energy production Price-based "Kyrgyzgaz" OJSC Distribution and sale of natural gas Price-based "Bishkekteploset" OJSC 1. Distribution and sale of heating energy Price-based 2. Technical maintenance of intra-residential system Price-based of heating supply "Kyrgyz Temir Zholu" NCSE Services related to railway Price-based "Manas" International Airport OJSC Ground handling Price-based "Kyrgyzaeronavigatsiya" SE Air navigation services Price-based "Kyrgyztelekom" OJSC Services provided to the end-user (consumer) Price-based "Kyrgyzpochtasy" SE Postal communication services provided within the Price-based country; Mailing card: regular; registered and paid Mailing letter: regular; registered; insured Delivery parcel: regular; registered; insured State enterprise of government Governmental communication services provided to Price-based communication under the Ministry budget-financed institutions and organizations of Transport and Communications of the Kyrgyz Republic "Kyrgyzstan" Air Company OJSC Passenger air transportation within the country Price-based; setting the maximum profitability level
79 Law of 8 August 2011, No. 149. 80 Antimonopoly Authority online information. Viewed at: http://www.antimonopolia.kg/index.php/ reestry/monopolisty.
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Enterprise Sector Method of regulation "Kyrgyzsaltyn" JS Candits affiliates Gold Identification of a range of consumers subject to mandatory services Gold refining Setting the maximum profitability level "Termir" SE Scraps, wastes of ferrous and non-ferrous metals, Price-based processing services "Karabaltinsky Spirit Factory"SE Spirit, services on technical processing of spirit Setting the maximum profitability level "Spetsialnayasvyaz" SE National passports delivery within the territory of the Price-based Kyrgyz Republic "Infokom" SE Acceptance, arrangement, check and issuance of Price-based passports and foreign passports of citizens of the Kyrgyz Republic on an urgent basis for a fee; production of a passport of a citizen of the Kyrgyz Republic in an urgent manger for a fee "Alfa-Telekom" CJSC Mobile communication services Price-based Kyrgyzkomur Coal Price-based
Source: Information provided by the Kyrgyz authorities.
3.3.6 Competition policy and regulatory issues
3.156. The Kyrgyz Republic has a well-established system with respect to competition policy and recently enacted new legislation. The Department on Antimonopoly Policy, under the Ministry of Economy, is in charge of developing policy; and the Antimonopoly Authority, under the Prime Minister, is responsible for oversight.
3.157. The first anti-monopoly law was developed in 1994 in order to restrain monopolistic activities and promote competition. The new law on competition, passed in 2011, aims to prevent and limit monopolistic activity and unfair competition, thereby ensuring conditions for the creation and efficient functioning of markets. The Kyrgyz Republic is member of the Inter-state Council on Antimonopoly Policy, pursuant to the Agreement on Implementation of Agreed Antimonopoly Policy, under the CIS framework.81 The agreement creates legal and organizational frameworks for cooperation in implementing agreed antimonopoly policy and competition development, as well as preventing monopolistic and unfair competition actions that damage economic interests of signatories. A number of laws and resolutions are aimed at promoting competition or imposing rules on monopolies (Table 3.33).
Table 3.33 Main competition laws
Laws on competition References Law on Competition Law of 22 June 2011, No. 116 Law on Natural and Permitted Monopolies in the Kyrgyz Republic Law of 8 August 2011, No. 149 Law on Consumer Rights Protection Law of 10 December 1997, No. 90 Law on Advertisement Law of 24 December 1998, No. 155 Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 21 June 2012, Rules on control over compliance with the antimonopoly legislation No. 431 of the Kyrgyz Republic during the process of economic concentration Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 1 June 2012, No. 351 Rules on consideration of investment projects, business plans, current reports, accounting policy and materials of re-assessment of fixed assets of natural and permitted monopolies Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 2 June 2012, No. 365 Rules for consideration of cases on violation of antimonopoly legislation Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 2 June 2012, No. 366 Rules on examination of requests and notifications by the state antimonopoly body filed pursuant to the requirements of Article 5 of the Law of the Kyrgyz Republic on Natural and Permitted Monopolies in the Kyrgyz Republic Resolution of the Government of the Kyrgyz Republic on approval of Resolution of June 11, 2012, Rules on coercive division (spin-off) of economic entities No. 391
81 20 January 2000.
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Laws on competition References Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 2 June 2012, No. 362 Rules on consideration of cases on violation of antimonopoly legislation in the area of unfair competition Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 2 June 2012, No. 364 Rules on identification and prevention of anti-competitive agreements (agreed actions) of economic entities restricting competition Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 18 February 2013, Procedure on setting prices (tariffs) for goods (works, services) of No. 83 natural and permitted monopolies Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 5 April 2013, No. 175 Rules for procurement of goods (works, services) by natural and permitted monopolies Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 10 February 2012, unified registry (list) of state services provided by the executive No. 85 bodies and structural subdivisions thereof and subordinate institutions Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 26 October 2000, Regulation on methodology of setting tariffs (prices) for paid No. 637 services (works) Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 18 May 2009, No. 300 Regulation on formation and application of tariffs for paid educational services in the Kyrgyz Republic Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 2 March 2010, a list of trade rules in the territory of the Kyrgyz Republic No. 118 Resolution of the Government of the Kyrgyz Republic on approval of Resolution of 14 June 2011, Procedure for setting tariffs for paid services (works) of the market No. 312 administration for use of trade areas by individuals and legal entities
Source: Information provided by the Kyrgyz authorities.
3.158. The Law on Competition is reportedly modelled on the competition laws of the United States and Russia. It contains 21 articles and addresses dominant position, group of individuals, abuse of dominant position, anti-competitive agreements, unfair competition, actions of state bodies, forced separation, compensation, accountability measures, right to appeals, etc. The other major law on competition concerns natural and permitted monopolies (section 3.3.5).
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4 TRADE POLICIES BY SECTOR
4.1 Agriculture
4.1.1 Overview
4.1. During the review period, the agriculture sector's performance was affected by several shocks, including political and ethnic crises, and adverse climatic conditions, which translated into erratic growth (Chart 4.1). As a result, the sector's GDP share decreased by 10 percentage points (Chapter 1) over 2006-12. The crops and livestock segments continued to dominate agricultural output, with increasingly even shares, whereas forestry and fisheries continued to make minor contributions to GDP.
4.2. Notwithstanding certain increases in cultivated area and livestock headcount, productivity indicators, such as average crop, milk, egg, and meat yields, remained almost unchanged and in some cases deteriorated. Land fragmentation continues to seriously limit the scope for economies of scale, thus discouraging investment in mechanisation.1 Despite some legislative loosening2, agricultural land ownership and trading remain restricted to Kyrgyz citizens residing in rural communities and (since 2009) Kyrgyz cooperatives and legal entities growing and/or processing agricultural products. Credit institutions that have come into possession of such land through claims on collateral must dispose of it within three years.3 Other factors that continue to hamper productivity improvements include: a degraded and still inefficiently managed irrigation system; limited access to quality seeds; shortcomings in the allocation and monitoring of pasture rights; and a dysfunctional veterinary service.
Chart 4.1 Agricultural output by main category, 2007-11 (US$ million)
3,500
3,000 (0.5)
(0.4) (0.5) 2,500 Cereals & pulses (0.5) (0.6) (0.1) (0.8) Potatoes (0.5) (0.5) (0.8) 2,000 (0.8) Vegetables (0.4) (0.8) (0.1) Fruit & berries (0.8) (0.02) (1.1) (1.3) Livestock & poultry 1,500 (0.1) (0.02) (1.0) Unprocessed milk (0.1) (0.1) (0.1) Other agriculture 1,000 (0.1) (0.02) (0.01) (0.01) (0.02) (0.01) 500
(0.7) (0.6) (0.6) (0.6) (0.7) 0 2007 2008 2009 2010 2011 Note: Figures in parentheses indicate State-controlled producers' output share in each category. Source: National Statistics Committee of the Kyrgyz Republic.
1 The authorities estimate that post-independence privatization resulted in over 300,000 smallholder farmers with an average plot size of 2.7 hectares; farms of less than 10 hectares account for 41% of cultivated land. Some 4.7% of all arable land, including 16% of irrigated arable land, remains in a State Farmland Fund (formerly, the Land Reallocation Fund) and may be leased out to farmers and business entities. 2 Law No. 174 of 26 May 2009 and Law No. 50 of 14 May 2012. 3 Between 2006 and 2012, Kyrgyz citizens wishing to acquire agricultural land had to have resided (permanently) in a rural community for at least two years; the time-frame for credit institutions' disposal of such land was one year. Even stricter limitations were in place prior to 2006.
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4.3. In 2011, agriculture employed 30.7% of Kyrgyz workers, down from 34.5% in 2006; agriculture workers earned about one half of the national average salary. Domestic market fragmentation, largely as a result of poor infrastructure, and underdeveloped trading platforms tend to squeeze producers' profit margins.
4.4. The Kyrgyz Republic remains a net food importer; its agricultural trade deficit increased during the review period, driven mainly by imports of processed foods. A number of agricultural imports, including wheat, flour, vegetable oil, and sugar, are essentially supplied by or transit through Kazakhstan. The dependence on a single trading partner partly reflects the configuration of transport routes, particularly railroads, which were built at a time when current national borders barely mattered.
4.1.2 Border measures
4.5. Agriculture and food processing continue to receive the highest levels of import tariff protection; non-ad valorem tariffs and import quotas apply exclusively to alcoholic beverages (Chapter 3). Other agriculture subsectors that are protected by MFN tariffs relatively higher than the sectoral average include: animals and animal products; dairy products; and fruit, vegetables and plants. Some agricultural products may occasionally be subject to export taxes or bans, motivated largely by domestic market shortages (Chapter 3).
4.1.3 Domestic measures
4.6. Domestic support to the agriculture sector takes various forms, including: subsidized credit; machinery leasing facilities; procurement and direct market intervention by the State; veterinary, sanitary, and phytosanitary services; and tax and tariff concessions.4 Measures aimed at ensuring food security and self-sufficiency, a priority matter following a 2007-08 food crisis, include: production grants; price controls and guarantees; and reserve stock maintenance.5 According to the authorities, actual support to the sector has been modest; given the prolonged political instability, which has also been conducive to corrupt practices, a number of support initiatives have been short-lived. Precise figures on domestic support to the agriculture sector, as well as estimates of forgone tax revenue, were not available.6
4.7. A 2011 World Bank report notes that budgetary outlays have been channelled mainly into irrigation and animal health, but have failed to address the root causes of poor service delivery.7 It questions the rationale for subsidizing the cost of irrigation8, while major system rehabilitation needs and inefficiencies in the management of water resources have continued to receive little attention. The report further notes that in 2007 Kyrgyz veterinary services failed to meet OIE standards in most critical areas, including infrastructure, staffing, education, epidemiological surveillance and diagnosis, and disease control and eradication.
4.8. The state-owned Kyrgyz Agro Food Corporation (AFC), established in July 2008, acts as an implementing agency of the Ministry in charge of Agriculture for the purpose of ensuring food security and "stable functioning" of the Kyrgyz food market. On the Ministry's instructions, the AFC may: intervene in the domestic agricultural produce market; provide farming and output marketing support, including advance payments and futures contracts; stimulate arable land utilization, seed farming, and livestock breeding; develop food market infrastructure and ensure the regulatory framework's integrity; mobilize financial resources and ensure their cost effective use in support of producers and processing enterprises; conduct foreign trade operations; and promote the creation and growth of agricultural firms and cooperatives.9
4 Law on Agriculture Development No. 166 of 26 May 2009. 5 Law on Food Security No. 183 of 4 August 2008. 6 According to the authorities, total loans to the agriculture sector amounted to som 13.3 billion in 2012, against som 16.5 billion in 2011; interest rates ranged between 13% and 34%. 7 World Bank (2011). 8 The price of irrigation water delivered from the state water supply system to water- user associations (WUAs) and, in some cases, directly to end-users is set by Government Resolution; it remains well below the level needed for the state system's maintenance. WUAs freely set their tariffs for onward water delivery. 9 Government Resolution No. 417 of 31 July 2008.
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4.9. In November 2008, the AFC received som 400 million (including 10 million for its capitalization) from the state budget, in the form of a loan with an interest rate of 3% and a maturity period of 1.5 years. It has struggled to operate on a self-sustaining basis and as of March 2013 owed som 469.47 million in overdue payments on its loan. AFC expenditures during 2008-13 totalled som 1,107.7 million and included: acquisition of imported and domestically produced wheat10, and oversight of its processing and marketing for the purpose of stabilizing flour prices; importation of fertilizers and foodstuffs; and installation of potato processing facilities for a Kyrgyz-Indian joint venture.11
4.10. At end-2006, the state-owned Kyrgyz Agricultural Finance Company (KAFC)12 was transformed into Aiyl Bank, whose mission was to extend credit (in local currency only) exclusively to the agriculture sector. Aiyl Bank remains fully state-owned. As from November 2009, the bank was authorized to lend in foreign currencies, to allocate up to 30% of its loan portfolio to non- agricultural activities, and to accept deposits of up to 25% of its capital. Concessional credit lines from the state budget and international donors account for most of Aiyl Bank's funding, which enables it to extend loans on very competitive terms (both interest rates and time frames) on the domestic market.
4.11. The Kyrgyz Government has also extended concessional credit lines for onward lending to the agriculture sector to the Financial Company for Support and Development of Credit Unions, RSK Bank (section 4.5.1.1), Bakai Bank, Bank “Kyrgyzstan”, and Kyrgyz Investment and Credit Bank. Government funding channelled to farmers through RSK Bank triggered a rapid expansion of the bank's balance sheet from end 2010.13 Subsidized credit facilities targeting the agriculture sector have also been made available by the State Economic Development Fund under the Ministry of Finance and by the National Bank of the Kyrgyz Republic. In addition, the Ministry of Agriculture and Land Reclamation has been procuring agricultural inputs (seeds) for distribution to the country's regions in the form of commodity credits.
4.12. Producers and processors of foodstuffs are exempt from sales, income, and profit taxes14. As from 2009, agricultural production and its processing by the producer are exempted from VAT; in September 2012 the exemption was extended to all entities processing domestically-produced agricultural commodities for a six-year period. VAT exemptions also continue to apply to: agricultural machinery (leased or domestically produced); mineral fertilizers; medicines and vaccines for animals; and imports of livestock and seeds.
4.13. In 2009, the Kyrgyz Republic established a voluntary crop insurance scheme, under which 50% of the cost of insurance premiums is subsidized from the state budget; participating insurers must transfer 5% of received crop insurance premiums to a national agriculture insurance reserve.
4.2 Mining
4.14. The Kyrgyz Republic is endowed with considerable subsoil resources (Table 4.1), but their economic potential remains largely untapped.15 Mining and quarrying activities accounted for less than 1% of GDP throughout the review period, although this figure excludes ore processing, which, statistically, is recorded as manufacturing (Chapter 1). Refined gold accounts for a significant share of Kyrgyz exports, representing some 50% in 2011 and 33% in 2012. The mining sector's contributions to export revenue and GDP continue to be essentially attributable to the Kumtor gold mine and fluctuate in line with its performance; technical and social issues caused a decline in its output in 2012.
10 Some domestically produced wheat has been acquired at above-market prices (Government Order No. 495 of 4 September 2009). 11 Government Orders No. 90 of 31 March 2011 and No. 571 of 30 December 2011. 12 Originally established in 1997, the KAFC accounted for over 61% of all credit to agriculture at end- 2005. 13 International Monetary Fund (2011a). 14 The producers of food and processed foodstuffs may be exempt from tax on profit if 75% of their income is derived from agricultural activities. 15 According to the State Agency for Geology and Mineral Resources, only 29.3% of Kyrgyz gold reserves were being exploited as of February 2013.
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Table 4.1 Registered mineral reserves, January 2012 and 2013 (Tonnes) 2012 2013 Gold 448.3 565.8 Lead 208,289.5 186,761.4 Wolfram 124,797.0 117,233.2 Molybdenum 2,523.1 2,523.1 Antimony 263,968.0 263,968.0 Mercury 10,538.0 10,511.0 Beryllium 11,701.0 11,701.0 Rare earth metals 51,500.0 51,500.0
Source: State Agency for Geology and Mineral Resources, Kyrgyz Republic.
4.15. The Kyrgyz Republic, via the state-owned company Kyrgyzaltyn, participates in the production of more than 97% of domestic gold output.16 This is largely due to its participation in the Kumtor mine, which accounted for approximately 95% of all domestically produced gold in the first half of 2013. In 2009, Kyrgyzaltyn became the largest shareholder of the Canadian- incorporated company (Centerra Gold) responsible for the Kumtor deposit's commercial exploitation, having raised its shareholding from 15.7% to 33%. Kyrgyzaltyn is a partner, on a 40% basis, in two additional joint ventures preparing to launch gold mining operations in the Kyrgyz Republic; it also has full prospecting rights for three other gold deposits. The State also participates in several non-gold mining operations, including the Khaidarkansky mercury mine (100%).
4.16. Kyrgyz policy on the use of subsoil resources is formulated by the Ministry of Economy. Certain aspects require Government approval, including strategies for the development of sites and deposits, and implementing regulations. Implementation is by the State Agency for Geology and Mineral Resources (SAGMR), acting, inter alia, as the authority in charge of licensing and work-plan approval. Discovered deposits must be registered with the State Commission on Mineral Reserves (GKZ), which is responsible for confirming reserve estimates. In addition, the State Inspectorate for Ecological and Technical Safety monitors compliance with industrial safety and environmental regulations, while the State Agency for Environmental Protection and Forestry conducts environmental impact evaluations.
4.17. The legal framework governing Kyrgyz subsoil underwent six alterations during 2006-12, the most recent was the entry into force of the Law on Subsoil Resources on 17 September 2012; a draft amendment to the Law was published for public consultations in March 2013.17 Another amendment, debated in April 2012 but eventually scrapped, contemplated a 20% ownership transfer to the State for some private mining projects.18 In addition, a parliamentary decree, adopted in February 2013, mandated the Kyrgyz Government to renegotiate the 2009 project agreements, which set out a special regime for the Kumtor gold mine.19 Mining operations at Kumtor have also been subject to fines for alleged past environmental damages, in (apparent) contradiction with the terms of the 2009 agreements. These developments, coupled with non- transparent licensing practices (see below), point to a rather uncertain legal framework, which continues to discourage private investment.20
4.18. Kyrgyz legislation prohibits any discrimination on grounds of nationality or country-of- incorporation in the granting of rights for the use of subsoil resources.21 Rights are awarded through licences for: geological research (up to 5 years), prospecting of deposits (up to 10 years), and exploitation (up to 20 years); all licences are renewable.22 There are no statutory limits on surface area for which a licence may be obtained. Licence holders must notify planned sales of
16 Kyrgyzaltyn online information. Viewed at: http://www.kyrgyzaltyn.kg. 17 Law on Subsoil Resources No. 160 of 9 August 2012. 18 EBRD (2012b) 19 Recommendations for the negotiations include aligning eliminating the Kumtor-specific tax regime. 20 Blockades by local residents demanding a fairer share of their regions' wealth are commonplace, and undermine the attractiveness of investment in mining projects. 21 Government Resolution No. 410 of 25 June 2009. 22 An exploitation licence may only be issued after confirmation of estimated reserves by the GKZ.
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- 77 - precious metals and stones, including those purified abroad, to the National Bank of the Kyrgyz Republic and offer it a priority right to purchase the full quantity or a portion thereof.23
4.19. The principal methods of awarding licences are: invitation to tender, open-bid auction, and direct negotiation (for small deposits).24 Subsoil rights may also be obtained as part of a concession or a production-sharing agreement; in these cases, no licence is required. The Kyrgyz Government establishes the list of sites subject to tendering procedures25, whereas the SAGMR elaborates the list of sites (mainly at the prospecting and exploitation stages) to be to be put up for auction. Direct negotiation is admissible for prospecting sites and deposits that have not been included in the Government's list of sites having nation-wide importance and for those that have had two unsuccessful auction attempts. However, an auction must be carried out whenever two or more expressions of interest for the same site are received within 30 days.
4.20. During 2006-12, the SAGMR issued 1,965 licences for activities related to metallic and non- metallic minerals, oil, gas, coal, and subsoil water; 2,147 licences were cancelled over the same period. At end 2012, there were 131 exploration, 203 prospecting, and 631 exploitation licences in force. Licenced exploration activities are primarily focused on gold, whereas commercial exploitation licences are mainly in the non-metallic minerals, coal, and subsoil water categories; there are some 45 valid licences for the exploitation of gold deposits. The processing of applications for the issuing of licences, the approval of work plans, and the confirmation of estimated reserves remains prone to significant delays, which could be particularly disruptive in light of the relatively short field-work season (4-6 months); application backlogs also facilitate corruption practices.
4.21. Kyrgyz legislation does not stipulate any restrictions on the processing and commercialization, including exportation, of subsoil resources by the holders of valid exploitation licences. According to the authorities, the exportation and importation of precious metals require specific licences, which are granted by the Ministry of Economy in consultation with the Ministry of Finance. New legislation is being drafted in this area. Pursuant to the Kumtor project agreements, the mine's entire output ("dore" alloy containing about 80% gold) is purchased and refined by Kyrgyzaltyn26; decisions on the refined gold's commercialization are made solely by the state- owned company. Kyrgyzaltyn and its affiliates are considered natural monopolies on the gold market and are included in the State Registry of National and Permitted Monopolies, maintained by the State Agency of Antimonopoly Regulation.
4.22. The licences conferring rights to Kyrgyz subsoil require payment of annual fees, which vary depending on the type of licence, the size of the surface area, and the specified subsoil resource.27 In addition, the granting of all licences is subject to a one-time bonus payment, which is set by the Kyrgyz Government depending on the deposit type and either the estimated reserves (as confirmed by the GKZ) or the surface area (for exploration licences).28 The holders of prospecting and exploitation rights must make regular payments (royalties), generally set at 3% of proceeds (less VAT and sales tax) received from the sale of minerals or products resulting from the processing of minerals.29 Different royalty rates apply in some cases: gold, silver, and platinum- 1% to 5%, depending on the deposit's estimated reserves; lignite coal-1%; gypsum-6%; and natural stones for covering-12%. In addition, mining activities are subject to the standard company income tax, sales tax, property tax, land tax, and social security contributions. Export taxes may be levied on certain subsoil resources sold abroad (section 3.2.2).
4.23. As from January 2013, instead of the standard rate, income tax on the extraction and sale of gold is levied on a progressive basis; the applicable rate has 14 bands and increases with the price for a troy ounce of gold, starting from 1% for prices in the US$1,201-1,300 range and
23 Law on Subsoil Resources No. 160 of 9 August 2012 (Article 22). 24 The licences are non-transferable; their use as collateral must be notified to SAGMR. 25 Whenever there are foreign bidders, the selection of offers may be based, inter alia, on the share of Kyrgyz nationals in total staff (Article 24 3 6). According to the authorities, no tendering procedures have taken place to date. 26 The purchase is based on the price of gold on the London bullion market. 27 Decree of the Government of the Kyrgyz Republic No. 12 of 12 January 2013. 28 The bonus is also payable in the event of shareholding changes of at least 10% at the licence-holding entity. 29 The royalty for subsoil water is a specific fee per volume extracted; the fee varies depending on the type of water and its intended use.
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- 78 - reaching 20% for prices above US$2,500.30 The tax base is either the revenue received from the sale of gold alloy and refined gold or the value of gold in ore and concentrates, calculated on the basis of world prices according to a procedure defined by the Kyrgyz Government.31 The supply of gold and silver alloys, and refined gold and silver is VAT-exempt; no VAT refunds may be claimed on inputs used in the process.
4.24. Pursuant to a special tax regime negotiated in 2009, the operator of the Kumtor gold mine is subject to a 13% tax on gross revenue, a contribution (1% of gross revenue) to a fund for the development of the district where the mine is located, and a fixed environmental charge. Whenever the sum of all capital and exploration expenditures made throughout the accounting year is less than 4% of gross revenue, an additional payment, equal to the difference, is to be made to the Kyrgyz Republic. The special tax regime exempts the operator from all other taxes and duties, including withholding taxes and customs duties.32
4.3 Energy
4.3.1 General features
4.25. During the review period, the Kyrgyz Republic remained a net importer of hydrocarbons and a net exporter of electricity (Table 4.2). While it is estimated to have considerable reserves across all energy sources, its hydropower potential clearly stands out as the most significant.
Table 4.2 Main energy indicators, 2006-12
2006 2007 2008 2009 2010 2011 2012 Electricity (million KWh) Generation 14,523.2 14,830.4 11,789.1 11,083.2 12,062.7 15,158.0 15,166.4 Consumption 7,192.2 7,672.7 7,334.0 7,134.5 7,447.3 9,131.8 11,680.1 Net exports-imports 2,673.3 2,575.7 766.1 1,199.5 1,711.8 2,673.8 1,508.3 Transmission loss 4,661.7 4,583.3 3,690.2 2,758.3 2,914.8 3,389.2 3,204.9 Installed capacity (MW) 3,660.0 3,660.0 3,660.0 3,660.0 3,780.0 3,780.0 3,780.0 Coal (thousand tonnes) Production 321.3 395.6 491.8 606.9 575.0 830.7 1,163.9 Consumption 1,257.7 1,310.7 1,741.5 1,703.9 1,592.2 1,826.5 1,923.1 Net exports-imports -897.9 -1,024.1 -1,441.0 -1,121.3 -1,100.4 -951.3 -896.6 Natural gas (million m3) Production 19.4 15.0 17.5 15.4 22.8 26.6 28.5 Consumption 660.8 670.4 639.9 254.5 236.5 286.5 363.3 Net exports-imports -738.9 -752.2 -727.7 -308.5 -271.7 -305.1 -334.8 Oil (thousand tonnes) Production 70.9 68.5 71.0 77.3 82.8 89.9 78.9 Consumption 83.7 136.8 134.9 79.0 97.1 81.1 91.0 Net exports-imports -15.9 -67.1 -73.0 -4.8 -14.8 1.1 -7.4
Source: Ministry of Energy and Industry of the Kyrgyz Republic.
4.26. Exclusive state ownership of all primary energy resources and a licensing regime for their use are stipulated in Kyrgyz legislation.33 The State Department on Fuel and Energy Complex Regulation (GAE) issues licences for 19 types of business activities, including: production, transmission, distribution and sale of electric energy, thermal energy, and natural gas; processing of oil and natural gas; construction of power plants, substations and power transmission lines; and
30 Law "On introduction of changes and amendments to the Tax Code of the Kyrgyz Republic" No. 158 of 9 August 2012. 31 The standard corporate income tax is levied on the combined sales and non-sales income; the latter includes, inter alia, interest income, dividends, royalties, forex gains, lease or rental income, and subsidies. 32 The Kyrgyz-sourced income of a foreign legal entity may be subject to withholding tax at source, as long as it is not attributable to a permanent establishment of that entity in the Kyrgyz Republic. 33 Law on Energy, 17 October 1996. Viewed at: http://www.energo.gov.kg/site/index.php?act=view_cat &id=3.
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- 79 - electricity export and import.34 Subsoil exploration and extraction of oil, natural gas, and coal are subject to licensing by the State Agency for Geology and Mineral Resources (section 4.2).
4.27. Foreign legal entities and individuals are awarded licences on the same terms, and pursuant to the same procedure, as Kyrgyz legal entities and individuals. State-owned companies enjoying monopoly rights by way of legislative acts have exclusive rights to obtain the relevant licence. Apart from a few small electricity distribution companies, all activities in the energy sector are performed by majority State-owned sanctioned monopolies. According to the authorities, the licensing regime is aimed at ensuring compliance with established safety and quality requirements.
4.28. As from September 2012, the State Agency of Antimonopoly Regulation has the function of antimonopoly regulation in the energy sector. It regulates the tariffs of 36 enterprises active in the sector, which have been declared natural monopolies. At the same time, end-user tariffs for electric and thermal power are set by government resolution; as from 2012, changes to these tariffs require parliamentary approval.35
4.3.2 Electricity
4.29. Endowed with substantial water resources, the Kyrgyz Republic ranks third among CIS countries in terms of hydroelectric potential. If harnessed properly, these resources could guarantee an ample long-term supply of renewable energy at a relatively low cost. However, at 3.03 GW, installed hydroelectric capacity is a fraction of the estimated potential (18.5 GW), and generated hydro power remains at about 9% of output projections under the full-potential scenario (142 billion kWh).36 Two thermal power plants in Bishkek and Osh raise the country's total installed capacity to 3.78 GW.
4.30. Following an unbundling in 2001, the electricity subsector comprises a generation company managing almost all installed capacity, a transmission company operating the national grid, and four regional distribution companies. State participation in each of these entities is 93% (including 13% owned by the national Social Fund); the generation and transmission companies are not to be privatized further.37 In addition, 18 small privately owned companies hold distribution licences; they tend to serve some of the most reliable customers. The transmission grid operator (National Electricity System of Kyrgyzstan) is the sole importer and exporter of electricity by virtue of its de facto monopoly on interconnections.
4.31. A number of weaknesses seriously undermine the subsector's performance, with negative repercussions on the Kyrgyz economy. Reported technical and commercial losses across the entire system (generation, transmission, and distribution) have been in the range of 21% to 32% of gross electricity feed throughout the review period. By and large, the state-owned companies in the subsector remain unable to operate as self-sustaining business entities; their total financial loss was som 2.2 billion in 2009 and som 0.57 billion in 2010.38 Unplanned power outages remain frequent, as below-cost tariffs fail to generate adequate funding for maintenance.39 The system runs on equipment that is mostly worn out and increasingly unreliable; donors and government-to- government financing are the main sources of funding for infrastructure upgrades.
4.32. The legacy of the Soviet model, based on full vertical integration and quasi-irrelevance of present-day national borders, continues to pose structural problems that threaten the Kyrgyz electric energy system's performance and integrity. Poor strategic planning and a weak regulatory framework have exacerbated the problems since independence (Box 4.1).
34 Regulation No. 722 of 26 November 2009. 35 Interim Government Resolution No. 7 of 20 April 2010. 36 Eurasian Development Bank (2011b). 37 Resolution on the Privatization programme of state property for 2008-2012 No. 518 of 17 September 2008. 38 Tetra Tech ES Inc. (2011). 39 Due to inadequate maintenance, actual capacity at the Bishkek thermal power plant is only about 250 MW, out of the 666 MW installed capacity.
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Box 4.1 Key structural weaknesses of the Kyrgyz electrical energy system
Incomplete national coverage: Conceived as an intrinsic component of the wider United Energy System of Central Asia, the Kyrgyz transmission grid still lacks independent coverage of the national territory; a portion of domestically generated electricity must transit through neighbouring countries' grids to reach Kyrgyz- based customers. Since 2009, the Kyrgyz grid operator has been paying its Uzbek counterpart a transit fee, which is negotiated annually. Output optimization constraints: Kyrgyz hydropower plants on the Naryn River were originally planned to provide irrigation and electricity to downstream countries in the summer, in exchange for winter deliveries of electricity and fuels to the Kyrgyz Republic. Their output optimization strategies must take into account water release obligations under seasonal irrigation agreements and transmission constraints imposed by transit via foreign grids. According to the authorities, since 2010 the only agreement to that effect is a bilateral one with Kazakhstan; unlike past practice, it is not a barter agreement. Poor accounting for energy flows: Technical and commercial losses are difficult to trace and practically undistinguishable, due to inadequate metering; customers cannot be identified with feeders. The non- transparent settlement of wholesale and retail electricity transactions, coupled with high tolerance of data errors, leaves much room for misreporting across the entire system. Allowing the entry of small distribution companies in this non-transparent environment may have contributed to non-technical losses and corruption. A recommendation to establish an independent wholesale settlement centre, dating back to 2009, remains topical.
Source: Tetra Tech ES Inc. (2011), Management Diagnostic of JSC Power Plants, Report on Phase 1: Preliminary Findings and Recommendations. Viewed at: http://www.energo.gov.kg/site/images/documents/123.pdf.
4.33. In 2008, electricity was reclassified as "a commodity of a special type" with a view to subjecting electricity theft to criminal sanctions.40 Since 2011, licences (essentially an unconditional authorization to do business) have been complemented by performance agreements which may set out specific obligations, requirements, and conditions. Performance agreements have been signed with the state-owned companies in the electricity subsector, while negotiations with the private distribution companies are still under way.
4.3.3 Hydrocarbons
4.34. Predominantly imported, oil and gas are estimated to account for more than half of the Kyrgyz Republic's primary energy needs (around 40% and 18%, respectively in 2009).41 Imports from the Russian Federation, including those under a quota exempt from Russian export tax (1.1 million tonnes/year), satisfy around 85% of Kyrgyz demand for petroleum products, while the rest is supplied mainly by Kazakhstan. All imported natural gas is supplied by Uzbekistan. New oil and gas discoveries in the Kyrgyz Republic were announced in 2011, but remain unconfirmed. Commercial exploitation of the country's considerable (confirmed) coal deposits remains limited, partly due to an incompatibility with existing thermal power plants.
4.35. The majority state-owned Kyrgyzneftegas (KNG) is а major player in petroleum and natural gas exploration, extraction and processing, as well as in the transport, storage, and sale of petroleum products (section 3.3.5). It owns most prospecting boreholes and active wells for crude oil and natural gas in the Kyrgyz Republic; during 2006-12, it was the sole holder of the relevant production licences. In September 2012, KNG bought out its 50% joint-venture partner and took full ownership of the only operational oil refinery in the Kyrgyz Republic.42 KNG's monopoly position is being challenged by the Chinese-owned company Batkenneftegaz in oil extraction (restoration of old wells) and, eventually, exploration, as well as by the future entry into operation of two Chinese-owned oil refineries. Although the authorities confirm its de facto monopoly status in several market segments, KNG has not been included in the State Registry of National and Permitted Monopolies. State-linked companies' presence on the retail market for petroleum
40 Law on Amendments to the Law on Energy of 30 May 2008. Viewed at: http://www.energo.gov.kg/site/index.php?act=view_material&id=46. 41 International Energy Agency online information. Viewed at: http://www.iea.org/stats/pdf_graphs/KGTPESPI.pdf. 42 The refinery has been operating at about 25% of its capacity (500,000 tonnes of crude oil per year). Evening Bishkek online information [in Russian only]. Viewed at: http://www.vb.kg/doc/203080_gosydarstvo_beret_pod_polnyy_kontrol_dobychy_i_pererabotky_nefti.html.
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- 81 - products is allegedly minimal. Gasoline, diesel fuel, liquefied petroleum gas, aviation fuel (wholesale), and fuelling stations are supplied by permitted monopolies.43
4.36. Another majority state-owned company, Kyrgyzgas, owns the infrastructure for transmission and distribution of natural gas; it operates the southern gas transmission pipelines, whereas the northern line, linking the capitals of Uzbekistan and Kazakhstan, is managed by a joint venture (KyrKazGaz) formed with Kazakhstan's state-owned KazTransGaz.44 Kyrgyzgas is deemed a natural monopoly in the distribution and sale of natural gas, and KyrKazGaz in transportation of natural gas. According to the authorities, an ongoing consolidation will eventually result in the transfer of KyrKazGaz infrastructure to Kyrgyzgas.
4.37. Kyrgyz legislation gives the State a priority right to purchase petroleum and natural gas, as well as any processed products thereof, produced on Kyrgyz territory.45 To this end, licence holders must notify planned sales, including exports, one month in advance. According to the authorities, this right has not been exercised during the review period.
4.38. Some 120 coal pits and mines are operational in the Kyrgyz Republic. Although coal production nearly quadrupled in 2006-12, imports remained at approximately one million tonnes (some 52% of domestic consumption in 2012), mainly because Kyrgyz thermal power plants have been designed to operate with higher-grade coal. Kazakhstan is the Kyrgyz Republic's main supplier, accounting for more than 90% of total coal imports. The subsector's main challenges include lack of funding to replace obsolete equipment and the country's poor transportation infrastructure.
4.39. In August 2012, state-owned coal companies Komur and Kara-keche were consolidated in a single enterprise, Kyrgyzkomur, with a view to optimizing administrative expenses.46 Kyrgyzkomur is responsible for promoting and implementing the Government's policy on coal mining, notably for ensuring adequate supply to the Kyrgyz population, state-funded organizations, and fuel and energy enterprises. To this end, it is intended to act as an umbrella entity assisting private coal production companies to form consortia for participation in large public procurement tenders. According to the authorities, Kyrgyzkomur has no exclusive rights on the importation, exportation, or marketing of coal; no licence is required for domestic coal sales. State support to coal mining enterprises was allegedly terminated in 2005, upon completion of the Programme for Coal Industry Development.
4.4 Manufacturing
4.40. Manufacturing output more than doubled in nominal terms between 2006 and 2012 (Chart 4.2), largely driven by growth in gold processing operations and international gold prices.47 Production in most non-metal subsectors also expanded, although the global economic slowdown caused a general contraction of nearly 10% in 2009; a broad-based return to pre-crisis output levels was achieved by 2011. The Kyrgyz Republic remains a net importer of manufactures, mainly due to the sustained dynamism in imports of machinery and transport equipment, chemicals, and other semi-manufactures.
4.41. Gold processing, essentially smelting and refining related to the exploitation of the Kumtor gold mine (section 4.2), dominated manufacturing activity throughout the review period. State participation in gold mining and smelting operations remains significant, although no exclusive rights are reserved through statutory provisions. Notwithstanding its relatively modest contribution to the sector's total output, the textiles and clothing subsector accounted for more than half of manufacturing employment in 2011, followed by food, beverages, and tobacco.
43 State Agency of Antimonopoly Regulation online information. Viewed at: http://www.antimonopolia.kg/index.php/reestry/monopolisty. 44 Kyrgyzgas online information. Viewed at: http://www.kyrgyzgaz.kg/content/5. 45 Law on Oil and Gas No.19 of 9 March 2004. Viewed at: http://www.energo.gov.kg/site/index.php?act=view_material&id=23. 46 Government Resolution No. 360 of 2 June 2012. 47 National Statistics Committee of the Kyrgyz Republic online information. Viewed at: http://stat.kg/index.php?option=com_content&task=view&id=93&Itemid=141.
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Chart 4.2 Structure of manufacturing production, 2006 and 2012 %
Source: National Statistics Committee of the Kyrgyz Republic.
4.42. Kyrgyz manufacturing has considerable potential for growth and diversification through better utilization of available resources and stronger linkages with other sectors of the economy, particularly agriculture and mining. However, realization of that potential has been severely hindered by prolonged political instability, which has discouraged investment. As a result, most industries continue to face international competitiveness challenges due to, inter alia, outdated production processes, limited access to financing, and working capital eroded by inflation. Capacity utilization remains very low (except in meat processing) and further decreased in several subsectors during the review period (Chart 4.3).
Chart 4.3 Capacity utilization in manufacturing, 2006 and 2010 %
Source: National Statistics Committee of the Kyrgyz Republic.
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4.43. During the review period, the Kyrgyz Republic made no significant changes to its MFN tariffs on imported manufactured goods. Clothing, textiles, and transport equipment have continued to enjoy some of the highest tariff protection levels (section 3.1.4). At the same time, the simplified customs regime for physical persons has continued to facilitate the importation of essential manufacturing inputs, although the list of eligible goods has been shortened and re-focused on the textile industry (section 3.1.4.2).
4.44. Domestic support to the manufacturing sector remains rather limited. Food producing and processing enterprises are eligible for VAT rebates and profit tax exemptions, without any conditions on the use of local inputs, labour, or services. A special taxation regime (voluntary patent system) is applied to physical persons active in a limited number of light manufacturing subsectors.48 The Kyrgyz public procurement legislation does not contain any provisions granting preference margins to local manufacturers.
4.5 Services
4.5.1 Financial services
4.45. On account of its underdeveloped state, notably the shallow securities market, the Kyrgyz financial system continues to impede domestic economic growth. The post-2008 global economic downturn, coupled with domestic socio-political upheaval throughout most of 2010, significantly dented the sector's profitability and exposed a number of systemic weaknesses. International development partners remain the principal source of concessional funding for domestic credit expansion. The financial sector is still subject to considerable government involvement, through ownership and targeted credit lines, which may compromise the level playing field or motivate political interference.
4.46. Banks continue to dominate the financial system, accounting for 79.9% of total assets in 2012 (down from 88.8% in 2006). Most remaining financial sector assets, 18.8% of the total in 2012, are held by non-bank financial and credit institutions (NBFCIs), which remain an important source of credit for small and medium-sized firms and rural borrowers. Financial intermediation, as reflected by the ratio of the overall credit portfolio to GDP, remains modest, although it increased from 13.3% in 2006 to 18.2% in 2012 (Table 4.3).
Table 4.3 Selected financial system indicators, 2006-12 (Som million and %) 2006 2007 2008 2009 2010 2011 2012 Total financial system assets, of which 32,274.8 45,598.8 64,346.8 80,230.8 71,790.7 84,826.4 108,579.4 Banks 28,659.8 39,672.0 55,168.5 67,983.3 57,932.8 66,752.9 86,738.8 Majority state-owned banks 3,252.3 3,680.1 5,475.1 5,529.7 11,769.3 14,692.8 15,869.3 NBFCIs 3,367.0 5,501.7 8,617.4 11,365.6 12,897.3 16,997.4 20,440.4 Insurance companies 236.7 412.4 547.6 865.5 942.3 1,054.9 1,376.5 Pension funds 11.3 12.7 13.3 16.4 18.3 21.2 23.7 Credits, of which 15,106.5 24,027.1 31,606.0 32,286.2 35,587.8 44,320.2 55,399.1 Banks 12,695.0 19,949.2 25,607.0 25,117.0 26,310.8 31,136.3 39,993.6 Majority state-owned banks 2,071.7 2,411.4 3,117.7 3,252.0 4,997.2 6,094.4 6,884.0 NBFCIs 2,411.5 4,077.9 5,999.0 7,169.2 9,277.0 13,183.9 15,405.5 Non-performing loans (%) 11.1 12.6 15.4 13.0 21.2 14.2 11.5 Banks 6.2 3.5 5.7 8.2 15.8 10.2 7.2 NBFCIs 4.9 9.1 9.7 4.8 5.4 4.0 4.3 Deposits, of which 13,010.7 16,473.8 22,843.2 28,191.2 27,633.1 36,963.9 43,330.7 Banks 13,010.6 16,468.2 22,825.0 28,156.8 27,598.1 36,928.4 43,279.4 State-owned banks 704.4 906.7 1,100.0 1,409.6 3,614.8 5,673.9 6,823.7 NBFCIs 0.1 5.6 18.2 34.4 35.0 35.5 51.3
Source: Data from the National Bank of the Kyrgyz Republic and State Service for Regulation, and Supervision of the Financial Market of the Kyrgyz Republic.
48 Government Resolution No. 733 of 30 December 2008.
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4.47. Most loans remain short to medium-term, with bank lending concentrated mainly in wholesale and retail trade and NBFCI loans focused mostly on agriculture activities. Interest rate spreads remain high, and foreign-currency lending continues to dominate bank credit49, with a 53.7% share in December 2012. Liquidity in the Kyrgyz financial system also remains elevated; banks' liquid assets covered 80% of short-term liabilities at end 2012, against a regulatory minimum of 30%.50 By and large, the system's characteristics suggest persistent uncertainty about the socio-political environment and weak competition.
4.5.1.1 Banking
4.48. The banking segment in the Kyrgyz Republic remains fairly concentrated, with the four largest banks accounting for 81.7% of the market.51 At end-April 2013 there were 23 active commercial banks, of which 10 were majority foreign-owned and another 4 had minority foreign participation. Three representative offices of foreign banks were also active in this segment.52 State-owned banks continue to dominate, particularly following some bank exits53 and the nationalization of Asia Universal Bank (AUB)54 in the aftermath of the 2010 socio-political turmoil. In 2012, foreign equity accounted for 36.5% of total charter capital in the banking system.
4.49. The National Bank of the Kyrgyz Republic (NBKR) remains in charge of bank licensing55 and prudential supervision; in principle, relevant requirements continue to apply uniformly to foreign, domestic, and state-owned banks. The NBKR also continues to have authority over the enforcement of antimonopoly legislation with regard to the financial institutions it regulates. However, its independence may still be undermined by political pressure, inconsistencies in the legal framework, and personal liability of NBKR staff for actions warranted in the execution of their official duties.56 The authorities are drafting a new Banking Code, aimed at comprehensively addressing current weaknesses in the legal framework governing the financial sector.
4.50. Foreign banks may enter the Kyrgyz market by establishing either a subsidiary or a joint venture, with no foreign equity caps. No economic needs tests are applied.57 During the review period, the Kyrgyz Republic strengthened deposit protection by requiring all banks with domestic operations to contribute 0.2% of their deposit portfolios to a Deposits Protection Fund administered by the State Agency on Deposits Protection, a non-commercial entity.58 Prudential regulation of the Kyrgyz banking system is still based on Basel I and, partially, Basel II norms; capital adequacy and liquidity requirements remain unchanged. According to the NBKR, the commercial banks under its supervision are not yet ready to implement Basel III norms.
4.51. Two state-owned banks, Aiyl Bank and RSK Bank59, have been significantly expanding their lending operations, at subsidized interest rates, on account of channelling concessional government funding in support of agriculture development (section 4.1.3). Budgetary outlays (som 1.1 billion in 2008-11) have also been used to increase the capital base of RSK Bank with a view to expanding its lending activities, particularly in support of SMEs and of regions that suffered damage in the 2010 internal conflict. In addition, the authorities are working on establishing a
49 NBFCIs are not allowed to lend in foreign currency. 50 NBKR online information [in Russian]. Viewed at: http://www.nbkr.kg/index1.jsp?item=1481&lang=RUS. 51 The overall market share is computed as a simple average of market shares across total assets, loans, deposits, and liabilities. (NBKR, 2012). 52 NBKR online information [in Russian]. Viewed at: http://www.nbkr.kg/index1.jsp?item=69&lang=RUS. 53 In April 2013, seven banks were in liquidation and two had licences revoked. 54 Irregular activities at AUB, a major market player, led to its insolvency and nationalization in June 2010; its assets were split into good and bad banks, with the former forming Zalkar Bank in December 2010. As of June 2013, the authorities were contemplating a fifth attempt at privatizing Zalkar Bank. 55 Among the 23 active banks, 3 are subject to restrictions on foreign currency operations and another 3 face restrictions on both foreign and domestic currency operations. 56 International Monetary Fund (2011b). 57 NBKR approval is still required for investments exceeding 10% of a bank's equity or voting stock. 58 The guaranteed threshold was raised from som 20,000 to som 100,000 per deposit (Law on Protection of Bank Deposits No. 139 of 29 April 2009). 59 The state-owned Settlement and Savings Company was converted into RSK Bank, which has operated as a universal commercial bank since 2008.
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State Development Bank (SDB) with a view to stimulating the development of, inter alia, affordable mortgage lending, leasing for agriculture, and lending to farmers and entrepreneurs.
4.5.1.2 Non-bank financial and credit institutions
4.52. As at June 2013, the NBFCIs under NBKR supervision comprised: 306 microfinance organizations (MFOs)60, 170 credit unions (of which 12 deposit-taking), the Financial Company for Support and Development of Credit Unions (FCSDCU)61, and 320 exchange bureaus. MFOs continue to dominate the segment, accounting for some 91.3% of NBFCI lending and 92.3% of NBFCI assets; their client base has also been expanding, whereas that of credit unions has been declining. Market concentration remains elevated, with the six largest MFOs accounting for 71.6% of total NBFCI lending.
4.53. MFOs and credit unions without deposit-taking activities remain subject to simplified (non- prudential) supervision. Prudential supervisory requirements, similar to those for banks, apply to deposit-taking MFOs and credit unions, as well as to credit unions financed by the FCSDCU.62 During 2006-12, the legal framework for regulation and supervision of MFOs and credit unions underwent various amendments relating to: licensing; prudential and reporting requirements; asset classification; credit risk management; external audit; transactions with insiders and affiliates of deposit-taking MFOs; acceptance of deposits and property mortgages; and Islamic finance transactions.
4.54. The lending operations of MFOs and credit unions remain predominantly focused on the agriculture sector, which absorbed 44.2% and 50% of their respective loan portfolios in 2012. Although exposure to unpredictable weather conditions and the generally low income levels in rural communities make agricultural lending a relatively high-risk activity, these institutions have maintained high-quality loan portfolios. In June 2013, non-performing (at risk) loans represented 4% and 3.2% of the respective portfolios of MFOs and credit unions, compared with 6.9% for banks.
4.55. MFOs remain almost exclusively funded through credit lines from international donors. Being prohibited from lending in foreign currencies, many MFOs had entered into foreign exchange arrangements with AUB, whereby they received loans in domestic currency collateralized by their foreign exchange deposits. The suspension of AUB operations as a result of its insolvency in 2010 triggered liquidity shortages for MFOs, prompting the NBKR to establish a temporary currency swap facility. The socio-political turmoil also caused delays in the delivery of negotiated external financing to MFOs.
4.5.1.3 Securities market
4.56. The State Service for Regulation and Supervision of the Financial Market of the Kyrgyz Republic (Gosfinnadzor) regulates and supervises the securities market, insurance companies, investment funds, private pension funds, and auditing companies.63 In principle, foreign companies and individuals receive national treatment in licensing requirements and other prerequisites for performing professional activities on the securities market. There are no restrictions on foreign portfolio investment in the Kyrgyz Republic. The Law on stock markets was amended in 2009, with a view to strengthening governance and transparency and ensuring compliance with the principles of the International Organization of Securities Commissions (IOSCO).
4.57. The capital market remains embryonic, with NBKR notes and treasury bills being the main securities traded; three investment funds have entered the market since 2005. Bank loans remain
60 MFOs include 5 microfinance companies, 228 microcredit companies, 73 microcredit agencies. 61 The FCSDCU is the apex organization of the credit union system, providing loans to credit unions at interest rates in the 10-20% range; it has been slated for privatization. 62 Presently, there are no deposit-taking MFOs in the Kyrgyz Republic. 63 In September 2005, the regulatory functions of the State Securities Market Commission, the State Agency for Financial Reporting Standards and Audit, and the Non-banking Sector Development Agency under the Ministry of Finance were consolidated into the State Agency on Financial Supervision and Reporting (SAFSR). Following two reorganizations, in 2007 and 2009, SAFSR became Gosfinnadzor, governed by the Law on State Service for Regulation and Supervision of the Financial Market of the Kyrgyz Republic of 24 July 2009.
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- 86 - the predominant source of funding for Kyrgyz companies, although two successful corporate bond placements in 2012 confirmed investors' interest in such instruments.
4.58. In 2010, the Kyrgyz Republic had 3 stock exchanges, with a combined turnover of US$20 million. A sharp decline in trading activity during the global economic downturn, exacerbated by the domestic socio-political crisis, triggered the bankruptcy of the Central Asian Stock Exchange (CASE) in August 2010. In March 2011, the Kyrgyz Stock Exchange (KSE) merged with its remaining rival, the Stock Exchange of Kyrgyzstan (BTS); the consolidated trading platform retained the name Kyrgyz Stock Exchange (KSE).64 Despite the adoption of a Government resolution for state participation, as a shareholder, in the consolidated KSE, no shares have been acquired to date.65 Trade volumes remain low, as a large group of listed companies are still majority state-owned, with less than 1% of their shares readily available on the market. Foreign participation, historically low, has contracted further in the context of persistent uncertainty about the political and business climate.66
4.5.1.4 Insurance
4.59. In January 2013, 16 insurance companies were operating in the Kyrgyz Republic, including 2 reinsurers and 5 companies with foreign participation; 5 insurers exited and 3 entered the market during 2006-12. Kyrgyz-incorporated insurers offered voluntary insurance for some 84 risks, while 9 companies had licences to provide compulsory insurance. Property insurance accounted for 73.3% of total insurance premiums in January 2013; the corresponding figure for compulsory insurance was 9.1%.
4.60. Insurance may only be supplied by (closed or open) joint-stock companies; a separate licence is required for each type of risk being insured. Insurers must reinsure 80% of insured risks; liability on each individual risk in an insurance contract may not exceed 20% of the insurer's equity.67 As from 2009, insurers are no longer obliged to reinsure domestically at least 5% of all insured risks. The capital requirements for insurers were raised in November 2010, with thresholds somewhat lower for incumbents relative to newly incorporated insurance companies. Insurance companies incorporated abroad may not market their services in the Kyrgyz Republic.
4.61. Life, property, and liability insurance are voluntary; health and life insurance is compulsory for military personnel. Four new laws on compulsory insurance were passed in 2008 and entered into force in 2010; the scope of mandatory insurance was thus extended to: civil liability of carriers of dangerous goods; carriers' civil liability to passengers; employers' civil liability for employees' work-related life and health damages; and civil liability of organizations operating hazardous production facilities.68 A capital base (equity) of at least som 50 million is required for provision of mandatory insurance.69 The authorities note that non-respect of these four laws remains commonplace, for lack of adequate administrative sanctions.
4.62. Insurers are required to maintain technical reserves for potential losses; reserve requirements vary by type of insurance. At least 80% of technical reserves must be invested domestically and comply with additional rules on their placement.70 For instance, at least 10% of technical reserves must be invested in government securities, while a cap of 30% of technical reserves applies to investments in securities (other than government and municipal ones) traded on the Kyrgyz stock market.
64 The Kyrgyz Stock Exchange (KSE) was established in 1994 and accounted for almost 80% of total turnover in 2010; the corresponding shares for the Stock Exchange of Kyrgyzstan (BTS), dating from 1998, and the Central Asian Stock Exchange (CASE), founded in 2004, were 15% and 6%. 65 Government Resolution No. 399 of 18 July 2011. 66 Nutall (2011). 67 Government Resolution No. 299 of 25 November 2010. 68 Laws No. 188 and No. 189 of 4 August 2008, No. 194 of 5 August 2008, and No. 202 of 15 August 2008. 69 Until 2010, only insurance companies without foreign participation could provide mandatory health and life insurance to military personnel. 70 Government Resolution No. 3 of 5 January 2011.
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4.5.2 Communication services
4.63. Virtually all telecommunications equipment, whether employed in the deployment of networks or by end-users, is imported into the Kyrgyz Republic. The expansion of networks is also held back by, inter alia, lack of qualified personnel, difficulties in securing land-owners' consent, and the unreliable electricity supply. Despite these challenges, the Kyrgyz telecommunications market continued to expand throughout the review period, driven by sustained dynamism in mobile telephony and internet subscriptions (Table 4.4). The total volume of communication services grew four-fold in 2006-12, reaching some som 21.1 billion. Nevertheless, fixed-line, mobile, and internet penetration indicators remain well below the corresponding CIS averages.71
Table 4.4 Communication services, selected indicators, 2006-12
2006 2007 2008 2009 2010 2011 2012 Subscriptions per 100 inhabitants Fixed-line telephony 8.7 9.1 9.2 9.2 9.2 9.0 8.6 Mobile telephony 18.6 41.7 63.4 82.8 96.3 113.0 120.0 Internet 0.4 0.3 36.2 40.5 51.4 42.8 50.8 Number of active service providers Fixed-line telephony 42 45 51 45 42 35 24 Mobile telephony 5 5 6 9 8 7 7 Internet 53 61 65 64 65 78 69 Number of withdrawn licences 9 19 24 37 0 16 8
Source: State Communications Agency.
4.64. Fixed-line communication services, with separate licences for local, intercity and international calls, and internet, are provided by 15 operators. The majority state-owned incumbent, Kyrgyztelecom72, still dominates the segment of fixed-line local telephony; its statutory monopoly on intercity and international calls was de facto eliminated in 2008.73 Mobile communication services are offered by seven companies; each operates a separate cellular network. Mobile network coverage extends to some 95.7% of the populated territory of the Kyrgyz Republic. The top two mobile operators are estimated to have market shares of 45% and 40%, respectively; the State owns 49% of the mobile market leader (MegaCom). Despite the segment's rapid growth, internet access is not yet available in all administrative regions of the Kyrgyz Republic; most access points (72% of the total) are concentrated in the capital, Bishkek.
4.65. The Ministry of Transport and Communications (MTC) remains in charge of Telecommunications policy formulation. Following four re-organizations during 2000-06, the telecom regulator was reformed once again in December 2009 and renamed State Communications Agency (SCA).74 Since 2011, draft SCA regulations require government approval, following a regulatory impact analysis.75 The SCA is responsible for: licensing in the area of communication; standardization and certification (including import authorization) of communications equipment76; radio frequency administration77; supervision of service quality and the technical condition of communications equipment; and tariff regulation.78 As from 2010, the
71 ITU online information. Viewed at: http://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx. 72 The State holds 77.84% of Kyrgyztelecom's shares and another 12.51% are owned by the national Social Fund; there have been four unsuccessful privatization attempts. 73 Although Government Resolution No. 153 (20 March 2000) stipulated the elimination of Kyrgyztelecom's monopoly rights as from 1 January 2003, implementation was delayed by five years. 74 Government Resolution No. 758 of 15 December 2009. 75 Law on Normative Legal Acts No. 23 of 13 May 2011. 76 In 2012, the SCA issued 1,167 certificates of conformity (227 in 2006) and 1,180 import permits (630 in 2006). 77 Spectrum allocation is the responsibility of the State Commission on Radio Frequency, which has not yet established a clear separation of frequencies into military and civil uses. 78 The SCA levies fees for the issuance of licences, certificates of compliance, and authorizations to use radio frequencies. Licensees must also make annual payments equal to 1% of their revenue from licensed activities.
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State Agency of Antimonopoly Regulation has sole competence in resolving competition cases related to the telecommunications market; it also gives its opinion on regulated tariffs, which are subsequently established by order of the SCA.
4.66. The tariffs of several natural and permitted monopolies remain subject to regulation (Table 4.5). Universal service obligations are not clearly defined in Kyrgyz legislation; no funding is set aside, either by the Government or through operator contributions, to offset the higher cost of serving the country's remote and mountainous areas. According to the authorities, there is a statutory requirement that Kyrgyztelecom serve remote areas on its own resources.
Table 4.5 Regulated telecommunication monopolies, 2012
Entity Regulation scope Natural monopolies Kyrgyztelecom All end-user tariffs; maximum threshold for the interconnection/termination rate/s charged Kyrgyzpost Tariffs for domestic shipment of postcards, letters, and parcels State enterprise for Tariffs for government communication services provided to institutions and government communications organizations financed from the national budget Asiainfo Tariffs for domain name registration in the Kyrgyz Republic Permitted monopolies Special connection Tariffs for transportation of national passports within the Kyrgyz Republic MegaCom (Alpha Telecom) All end-user tariffs for cellular communication services
Source: State Agency of Antimonopoly Regulation of the Kyrgyz Republic, Order No. 2 of 16 January 2012.
4.67. The SCA may grant licences for one or more services within the broader activity categories stipulated in the legislation.79 According to the authorities, the awarding of telecommunications licences and spectrum is transparent and technology-neutral80; nevertheless, separate licences seem to be required for provision of mobile services with different technologies. No overseas ownership restrictions are applied, and foreign and domestic operators enjoy the same rights. Licensees wishing to provide real-time voice transmission services (intercity, international, or over a packet-switched network) are still required to invest at least som 20 million in telecommunications infrastructure within one year of obtaining the respective licence. This particular threshold and, more generally, the level of administrative fines for non-compliance with SCA decisions seem too low to have a meaningful impact on operators' conduct.
4.68. A 2007 study by the ITU deemed all major Kyrgyz telecommunication markets fully open to competition.81 Nevertheless, a more recent EBRD assessment finds scope for strengthening market contestability through regulatory provisions that establish or clarify, inter alia: infrastructure- sharing obligations; interconnection terms, including a reference offer and regulated interconnection charges; secondary-spectrum trading; (fixed and mobile) number portability; local loop unbundling; domestic mobile roaming; and frameworks allowing the entry of virtual-network operators and carrier (pre-)selection for certain calls.82
4.5.3 Transport
4.69. During the review period, the economic disadvantages of the Kyrgyz Republic's landlocked situation continued to be exacerbated by poor transport infrastructure, which remains an important hindrance to trade flows. Due to the country's predominantly mountainous terrain, most passengers and cargo are transported by road (Chart 4.4), notwithstanding the hazards of adverse weather conditions83 and lax driving standards.
79 The activities subject to licensing are: postal and electric communication; data transmission; TV and radio broadcasting; and use of radio frequency spectrum, including the design, production, and deployment of required networks and equipment (Regulation on the licensing of certain types of business No. 519 of 19 July 2006). 80 There have been no auctions for allocation of spectrum or licensing purposes. 81 ITU (2007). 82 EBRD (2012a). 83 Avalanches and landslides, caused by heavy rains, snowfall, and the springtime thaw, frequently prompt the closure of the only highway connecting the main southern city Osh and the capital Bishkek.
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Chart 4.4 Passenger and cargo transport, 2006, 2009, and 2012 Passenger transported (million)
700.07.0
6.5 Road Railroad 600.06.0 Air 5.5 35,000 38,000 500.05.0
4.5 24,900 400.04.0
3.5
3.0
2.5
2.0
Passengers transported (million) 1.5
1.0 1,911.1 1,044.4 0.8 1,100.0 0.5 0.7 0.9 0.0 2005 2006 2007 2008 2009 2009 2010 2011 2012 2013 Note: Bubble height reflects the respective mode of transport's annual passenger traffic, whereas bubble size reflects annual cargo tonnage (thousands) as indicated by the figures in colour. Source: Data from the National Statistics Committee of the Kyrgyz Republic.
4.70. Railroads still cover only a fraction of Kyrgyz territory, which, coupled with the lack of direct railroad links with China and Tajikistan, keeps bilateral and transit trade flows well below their potential. The passenger rail service is facing increased competition from airlines on its main international routes. Airborne passenger and cargo traffic, albeit still relatively modest, nearly doubled between 2006 and 2011.
4.71. The Ministry of Transport and Communications (MTC) remains in charge of policy formulation for all modes of transport. During the review period, its departments responsible for road and air transport regulation were transformed into the State Agency for Automobile and Water Transport (SAAWT)84 and the Civil Aviation Agency (CAA), respectively. Since its last Review, the Kyrgyz Republic has ratified the Convention on Road Traffic85, the Convention on Road Signs and Signals86, and the Agreement on the International Carriage of Perishable Foodstuffs and on the Special Equipment to be Used for Such Carriage (ATP).87
4.5.3.1 Road
4.72. The Kyrgyz road network is state-owned; some 55% is in need of partial or major repairs.88 The poor condition of major roads adds substantially to transportation costs. The State also owns and operates some passenger bus terminals, which must be used by all carriers (including private ones).
4.73. No companies with state participation are involved in cargo or non-urban passenger transport. In major cities, municipal and private transport companies operate in parallel on the basis of agreements concluded with the municipalities. The road transport segment's post-Soviet era fragmentation into many small independent business entities has undermined compliance with prudential standards for technical operation and maintenance. The vehicle fleet in the Kyrgyz Republic is progressively aging and shifting towards a predominance of minibuses, with adverse
84 The Agency is the result of the merger of the Department of International Road Transport (Kyrgyzintrans) and the State Transport Inspectorate (Government Resolution No. 466 of 4 July 2012). 85 Law No. 41 of 13 February 2006. 86 Law No. 48 of 13 February 2006. 87 Law No. 63 of 30 June 2011. 88 Road transport development strategy of the Kyrgyz Republic for 2011-2015. Viewed at: http://www.time.kg/index.php?newsid=19.
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4.74. As of 2013, the only activities subject to licensing are international freight transport and all passenger transport. Carriers wishing to obtain a licence must be incorporated and pay taxes in the Kyrgyz Republic. All licences are awarded through tenders; their validity is one year for passenger transport and three years for international freight transport. All international road transport services, except for Kazakhstan89, Russia, and Tajikistan, also require a permit, which carriers must obtain before each journey. Licences and permits are administered by the SAAWT.
4.75. Freight transport and international passenger transport by road are not subject to tariff regulation. The fares for domestic passenger transport (intercity and urban routes), remain government-regulated and their sluggish adjustment to input costs is a key reason for carriers' low profitability.90 Most bus service routes to rural communities are thus unprofitable; generally, such routes are bundled with profitable ones and assigned to a carrier through open competitions. According to the authorities, carriers received no support from the state or regional budgets during the review period. In 2009, public service obligations that granted certain types of passengers free domestic bus transport, with partial state compensation of the carriers, were replaced with targeted payments to the beneficiaries.
4.76. The Kyrgyz Republic is not a party to the European Agreement concerning the Work of Crews of Vehicles Engaged in International Road Transport (AETR) and has not established AETR- compliant requirements for the use of digital tachographs in freight vehicles. Accordingly, some 95% of the 1,800-strong Kyrgyz cargo fleet involved in international transport are ill-equipped to circulate in the 32 countries that have implemented the AETR digital tachograph system since July 2010. Tajikistan is the Kyrgyz Republic's only neighbour that has not adopted AETR-compliant requirements.
4.77. Foreign trucks and buses are not allowed to transport cargo or passengers between two domestic destinations (cabotage). SAAWT issues transit permits to foreign freight vehicles entering Kyrgyz territory, based on bilateral agreements; entry without a permit results in a US$250 fee. Foreign carriers are required to register with SAAWT within three days of entry into the Kyrgyz Republic; no limitations on transit time apply. According to the authorities, the control of foreign transport vehicles remains lax, and stipulated weight and size limits are frequently exceeded.
4.5.3.2 Rail
4.78. Kyrgyz railroads are essentially spokes of a Soviet-era rail network providing connections to hubs in neighbouring Kazakhstan and Uzbekistan, but rather limited and fragmented national coverage.91 Transit through the Kyrgyz Republic is impossible under the current railroad configuration; railroad connections between certain Kyrgyz cities involve transit through neighbouring countries. No new railroads have been built in the Kyrgyz Republic since its independence. Rolling stock and infrastructure continued to deteriorate during the review period, as funding for maintenance and rehabilitation remained scarce.
4.79. The National Company Kyrgyz Temir Zholu (Kyrgyz Railways) remains fully state-owned and retains a statutory monopoly over all rail services and infrastructure. According to the authorities, it does not receive any allocations from the state budget. In 2011, Kyrgyz Railways was handed over to the MTC with a view to streamlining work on the design and construction of new railways on priority routes.92 However, longstanding projects for the construction of two priority railway links (China-Uzbekistan and a domestic north-south connection) have not evolved beyond the preliminary feasibility study stage.
89 In 2012, Kazakhstan introduced a temporary permit system for Kyrgyz carriers transiting through its territory; no permits are required for bilateral transport traffic. The transit permits are administered by Kazakhstan. 90 Carriers must submit fare proposals to the Antimonopoly Agency, which has the authority to make a final decision; the fares of municipal transportation companies are set by a representative body of the respective municipal government. 91 The railroads inherited from the Soviet Union comprise 323.4 km in the north and 101.2 km in the south; they are not consolidated into a domestic network and are not adapted to electric traction. 92 Government Decree No. 364 of 5 July 2011.
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4.80. The passenger and domestic cargo segments remain lossmaking and continue to rely on cross-subsidies from international freight services.93 Passenger and domestic freight fares are set by the State Agency of Antimonopoly Regulation; they are linked to the Swiss franc and have reflected its strong appreciation against the Kyrgyz som during 2008-12. The railway company's financial situation is further complicated by considerable external debt, mainly to the Kazakhstani and Russian railways, as well as by significant overdue payments for domestic freight services, predominantly those rendered to other state-owned enterprises.
4.5.3.3 Air
4.81. International air transport services remain governed by bilateral agreements; such agreements have been signed with 26 partner countries (as at May 2013).94 In addition, the Kyrgyz Republic and the European Union signed an agreement on some aspects of air traffic in June 2007; it stipulates that carriers appointed by EU member states may perform commercial flights to the Kyrgyz Republic, whereas all Kyrgyz-registered carriers remain blacklisted in the European Union. In general, the bilateral agreements in force stipulate first through fourth air freedoms; one agreement provides for the granting of fifth freedom rights through special authorizations from the CAA.95 The authorities are studying the possibility of unilaterally implementing an "open skies" policy, which could provide a significant boost to the Kyrgyz economy.
4.82. Companies that operate domestic commercial flights must be Kyrgyz-registered and have at least 51% Kyrgyz ownership.96 The same ownership limitation seems to remain in place for companies performing aircraft repairs and maintenance, although Kyrgyz GATS commitments stipulated its elimination by 2005. Kyrgyz-registered airlines, including the national carrier, do not receive direct subsidies from the State. Domestic passenger and cargo air fares are regulated by the State Agency for Antimonopoly Regulation, which sets maximum fares; all carriers operating on domestic routes receive a 50% discount on airport and air navigation fees.97
4.83. As of June 2013, there were 16 registered air carriers in the Kyrgyz Republic98; 5 of them operate regular international and domestic flights, while 14 foreign-registered carriers operate regular flights to the Kyrgyz Republic. The average age of Kyrgyz-registered aircraft exceeds 20 years; besides raising safety concerns, these airplanes are uncompetitive on fuel consumption and in-flight comfort. All air carriers certified by the CAA are banned from operating in European airspace; this has negative repercussions on the aircraft leasing terms these carriers are able to obtain.
4.84. In 2006, the nearly-bankrupt national air carrier Kyrgyzstan Aba Joldoru was merged with its main rival, Altyn Air, an airline company created in 2001 as a subsidiary of the state-owned gold mining and processing company Kyrgyzaltyn (section 4.2).99 The Kyrgyzstan Aircompany, formed by this merger, it is the only air carrier owned by the State. An agreement on the settlement of merger-related debts to Kyrgyzaltyn was reached in 2010; the debt was fully repaid in July 2012.100
93 Passenger service's losses were som 325.1 million in 2011 (about US$6.8 million), of which 85% were from international routes. 94 CAA online information. Viewed at: http://www.caa.kg/ru/regulation.html. 95 The CAA granted the first special authorization in 2012, following consultations with its Turkish and Mongolian counterparts. 96 The Kyrgyz Republic has not ratified any international air transport agreements stipulating eighth or ninth freedom rights (consecutive or stand-alone cabotage, respectively); poor airport infrastructure is an additional impediment to the provision of such services. 97 Government Resolution No. 479 of 19 October 2007. 98 CAA online information. Viewed at: http://www.caa.kg/ru/operators.html. 99 Presidential Decree No. 517, 14 November 2015, and Government Resolution No. 9, 11 January 2006. 100 Kyrgyzaltyn online information. Viewed at: http://www.kyrgyzaltyn.kg/the-news/473-aviakompania- kyrgyzstan-pogasilo-zadoljennost-za-tu-154.
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Chart 4.5 Passenger travel options to selected destinations, January 2013
Note: Reported travel time is based on itineraries involving no more than one stopover: total time from Almaty airport includes a 5-hour allowance for transfer from Bishkek. Source: Ministry of Economy of the Kyrgyz Republic.
4.85. According to CAA classification, the Kyrgyz Republic has seven domestic and four international airports101; worn out infrastructure is common to all of them. Regular domestic flights connect Bishkek to four other airports. The Manas and Osh international airports handle most international flights and are the only ones operating on a 24-hour basis, although Osh's runways are in urgent need of repairs. The Manas airport hosts the country's only cargo terminal and a "transit centre" (air base) primarily operated by the U.S. Air Force; the transit centre's possible closure in 2014 is expected to trigger a five-fold contraction of the airport's net profit.102
4.86. Better flight options, including number of routes, frequency of flights, and lower airfares, still make the Almaty international airport in neighbouring Kazakhstan a preferred airport for many Kyrgyz travellers (Chart 4.5). Regular direct flights connect the Manas airport to only three major hubs (Dubai, Istanbul, and Moscow); a number of routes are operated by a single carrier, which facilitates monopoly pricing.
4.5.4 Tourism
4.87. Although the Kyrgyz Republic's natural and historic attractions have drawn attention to untapped possibilities in tourism for a long time, the sector continues to perform well below its potential. Popular attractions include the Lake Issyk-Kul and ancient cities on the Silk Road, while the country's mountains offer ample possibilities for development of hiking routes and skiing facilities. Tourism is estimated to employ some 118,000 people (including indirect employment), representing approximately 5% of the Kyrgyz workforce; however, tourism statistics remain very unreliable.
4.88. The Kyrgyz Republic does not have a specific regulatory framework governing the provision of tourism services. Accommodation providers, tour operators, and travel agents are not subject to licensing. There are no statutory provisions for the ranking of accommodation facilities (stars); no control is exercised over hotel owners' ranking claims. Foreign ownership of tourist facilities in the
101 All 11 airports are the property of the open joint-stock company Manas International Airport; the State owns 79.1% of its shares, while 8.5% are held by the State Social Fund. Unprofitable airports are funded by profitable ones within the company's portfolio. 102 Ministry of Economy (2013).
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Lake Issyk-Kul region remains prohibited, and their lease by foreign-owned operators (for 49 years, renewable) remains subject to parliamentary approval.
4.89. Government policy for the development of the sector has suffered from lack of direction and continuity, partly attributable to socio-political instability. A sector-specific strategy has been elaborated but has yet to be adopted. During the review period, policy action seems to have been limited to the elimination of visa requirements (short-term visits) for citizens of 44 countries. However, restricted and expensive international air access remains a major constraint to the sector's development. Insufficient permits for international passenger transport by road also constitute a barrier.
4.90. Execution of tourism policy is the responsibility of the Ministry of Culture and Tourism; its tourism department appears seriously understaffed. The tourism department's functions do not include elaboration of normative acts103; by and large, its work consists in organizing training activities aimed at improving service quality in the sector and diversifying the range of tourism products offered in the Kyrgyz Republic.
103 The department's voluntary contributions of draft normative acts have been blocked by the Ministry of Justice.
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REFERENCES
EBRD (2012a), Electronic Communication Sector Comparative Assessment, Kyrgyz Republic– Country Summary. Viewed at: http://www.ebrd.com/downloads/legal/telecomms/kyrgyz-republic-2012.pdf.
EBRD (2012b), Transition Report, Integration across borders. Viewed at: http://www.ebrd.com/downloads/research/transition/tr12.pdf.
Eurasian Development Bank (2011), Small Hydropower in the CIS: Current Status and Development Prospects, Sector Report No. 14.
International Monetary Fund (2011a), First Review Under the Three-Year Arrangement Under the Extended Credit Facility and Request for Modification of Performance Criteria, IMF Country Report No. 11/354, December, Washington D.C.
International Monetary Fund (2011b), Kyrgyz Republic: Selected Issues, IMF Country Report No. 11/156, June, Washington D.C.
ITU (2007), Country and Regional profiles. Available at: http://www.itu.int/ITU-D/treg/profiles/guide.asp?lang=en.
Ministry of Economy of the Kyrgyz Republic (2013), Analytical Study on the Feasibility of Adopting an Open Skies Policy in the Civil Aviation Sector of the Kyrgyz Republic, Bishkek. Viewed at: http://www.mineconom.kg/Docs/investment/Report_on_Open_Skies_policy_in_KG25_01_13.docx.
NBKR (2012), Report on Financial Sector Stability. Viewed at: http://www.nbkr.kg/DOC/14012013/000000000019715.pdf.
Nutall C. (2011), Business New Europe, Kyrgyz stock exchanges merge in hope of better times ahead, 13 June, Bishkek. Viewed at: http://www.bne.eu/story2731.
Tetra Tech ES Inc. (2011), Management Diagnostic of JSC Power Plants, Report on Phase 1: Preliminary Findings and Recommendations, March. Viewed at: http://www.energo.gov.kg/site/images/documents/123.pdf.
USAID (2010a), Economic Consequences of the Customs Union for the Kyrgyz Republic. Publication, 19 April.
USAID (2010a), Economic Consequences of the Customs Union for the Kyrgyz Republic, Phase II. Publication.
World Bank (2011), Kyrgyz Republic - Agricultural policy update (Vol. 2 of 2), December. Viewed at: http://documents.worldbank.org/curated/en/2011/12/16411832/kyrgyz-republic-agricultural- policy-update-vol-2-2-main-report.
World Customs Organization (2011), Position Regarding Contracting Parties, Document NG0179E1a, August, Brussels. Viewed at: http://www.wcoomd.org/~/media/WCO/Public/Global/PDF/About%20us/Legal%20Instruments/Co nventions%20and%20Agreements/HS/NG0179E1.ashx?db=web.
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5 APPENDIX TABLES
Table A1. 1 Merchandise exports by HS section and major HS chapter, 2006-12
HS HS Chapter/Code 2006 2007 2008 2009 2010 2011 2012 Section Total (US$ million) 794.1 1,134.2 1,617.6 1,673.0 1,759.8 1,978.9 1,683.2 (% of total) 01 Live animals and products 3.0 2.7 2.3 11.8 16.0 1.9 2.0 04 Dairy products 2.6 2.3 1.9 3.8 3.6 1.5 1.5 02 Vegetable products 4.6 7.1 5.9 8.8 7.8 7.0 8.8 07 Edible vegetables 3.0 4.2 2.7 6.4 5.5 4.8 5.3 08 Edible fruit and nuts 1.3 2.7 3.1 2.1 2.0 2.0 3.3 03 Fats and oils 1.0 0.8 0.7 0.4 0.1 0.0 0.0 04 Prepared food, beverages and 3.6 3.3 2.3 2.2 2.6 2.3 2.5 tobacco 05 Mineral products 22.4 29.1 27.9 14.1 7.2 10.9 14.9 27 Mineral fuels and oils, products 18.7 24.7 24.5 13.5 6.7 9.3 10.5 thereof 26 Ores, slag and ash 0.4 0.5 0.3 0.2 0.0 0.9 3.3 06 Chemicals and products thereof 1.8 2.2 8.1 15.5 9.5 2.5 3.4 28 Inorganic chemicals 0.7 1.3 7.5 15.2 9.2 1.8 2.6 07 Plastics and rubber 2.5 1.6 0.7 0.8 0.5 1.2 1.6 08 Raw hides and skins; leather 1.8 1.4 1.1 0.4 0.4 0.6 0.6 09 Wood, cork, straw 0.1 0.1 0.1 0.0 0.0 0.0 0.0 10 Pulp of wood; paper and paperboard 0.6 0.4 0.4 0.5 0.4 0.5 0.6 11 Textiles and textile articles 12.2 10.8 8.2 6.2 9.2 9.5 12.2 62 Clothing, not knitted or 5.6 6.5 5.7 3.8 5.5 5.3 6.8 crocheted 61 Clothing, knitted or crocheted 0.4 0.5 0.3 0.5 1.6 1.9 2.4 52 Cotton 4.9 2.8 1.6 1.4 1.7 1.7 2.1 12 Footwear, headgear, etc. 0.1 0.2 0.3 0.2 0.1 0.2 0.2 13 Articles of stone, plaster, cement 5.5 4.8 2.7 0.4 0.6 0.5 1.7 14 Precious stones and metals, pearls 26.8 20.1 29.9 31.9 38.2 51.4 33.8 710812 Non-monetary gold, 25.9 19.8 286.0 31.6 38.0 50.8 33.4 unwrought, excl. powder 15 Base metals and articles thereof 3.4 4.7 3.0 1.1 2.1 3.6 4.4 72 Iron and steel 1.2 1.2 0.8 0.2 0.7 1.5 1.9 16 Machinery, electrical machines 6.4 6.2 3.4 3.0 2.8 2.8 4.2 84 Machinery and mechanical 3.4 3.3 1.6 1.5 1.0 1.2 2.5 appliances 85 Electrical machinery 3.1 2.9 1.8 1.5 1.8 1.6 1.8 17 Transport equipment 3.0 3.7 2.4 2.0 2.1 3.5 8.3 87 Motor vehicles and parts thereof 2.0 3.4 2.1 1.8 1.9 3.3 7.3 18 Precision equipment 0.1 0.3 0.1 0.2 0.1 0.3 0.3 20 Miscellaneous manufactured articles 0.4 0.4 0.3 0.3 0.2 0.2 0.3 Not classified 0.6 0.0 0.2 0.4 0.3 0.9 0.0
Source: WTO calculations, based on data provided by the Kyrgyz authorities.
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Table A1. 2 Merchandise imports by HS section and major HS chapter, 2006-12
HS HS Chapter 2006 2007 2008 2009 2010 2011 2012 Section Total (US$ million) 1,718.2 2,412.1 4,072.4 3,040.2 3,223.1 4,261.2 5,373.9 (% of total) 01 Live animals and products 1.3 1.7 1.5 2.2 3.0 2.2 1.9 02 Vegetable products 3.6 4.9 4.3 4.7 3.8 3.9 3.4 10 Cereals 2.0 3.3 2.5 2.9 2.3 1.9 1.9 03 Fats and oils 1.2 1.3 1.2 1.6 1.9 1.7 1.4 04 Prepared food, beverages and 8.2 7.7 6.2 8.1 8.3 8.8 7.9 tobacco 17 Sugars and sugar confectionary 3.0 1.7 1.2 2.0 1.9 2.3 1.6 18 Cocoa and cocoa preparations 1.0 1.3 1.1 1.5 1.6 1.6 1.6 05 Mineral products 30.7 32.2 30.5 27.6 27.2 23.5 22.4 27 Mineral fuels and oils, products 29.3 30.5 29.4 26.4 26.5 22.8 21.7 thereof 06 Chemicals and products thereof 8.5 9.2 7.1 10.1 9.3 9.5 9.0 30 Pharmaceutical products 2.9 3.4 2.4 2.9 3.4 3.8 3.5 07 Plastics and rubber 5.0 4.3 2.7 3.3 3.8 4.0 4.2 39 Plastics and articles thereof 2.9 2.3 1.6 1.8 2.3 2.5 2.6 40 Rubber and articles thereof 2.1 2.0 1.0 1.4 1.5 1.5 1.6 08 Raw hides and skins; leather 0.1 0.1 0.2 0.2 0.2 0.3 0.3 09 Wood, cork, straw 1.7 2.3 1.7 2.2 2.0 2.4 2.5 44 Wood and articles thereof 1.6 2.2 1.7 2.2 2.0 2.4 2.5 10 Pulp of wood; paper and paperboard 1.9 1.7 1.2 1.9 1.6 1.8 1.5 11 Textiles and textile articles 3.0 2.0 6.4 6.2 6.5 6.9 7.0 61 Clothing, knitted or crocheted 0.5 0.1 2.1 1.6 1.6 1.7 2.2 62 Clothing, not knitted or 0.4 0.2 1.5 1.8 1.9 2.5 2.1 crocheted 12 Footwear, headgear, etc. 0.4 0.4 1.6 1.9 1.3 1.4 1.6 13 Articles of stone, plaster, cement 1.5 1.5 1.4 1.9 1.7 2.0 1.7 14 Precious stones and metals, pearls 0.2 0.1 0.2 0.1 0.1 0.1 0.4 15 Base metals and articles thereof 6.1 7.4 5.7 6.1 5.7 6.7 7.7 72 Iron and steel 1.9 2.6 2.2 2.6 2.2 2.6 3.2 73 Articles of iron and steel 1.8 1.8 1.7 2.3 2.1 2.3 2.9 16 Machinery, electrical machines 15.8 14.2 11.2 10.9 12.7 11.4 11.8 84 Machinery and mechanical 8.8 8.5 7.1 7.3 8.2 6.6 7.0 appliances 85 Electrical machinery 7.1 5.7 4.2 3.6 4.5 4.8 4.9 17 Transport equipment 8.0 6.0 15.4 9.1 8.7 11.3 13.3 87 Motor vehicles and parts thereof 6.2 4.8 14.6 8.3 8.4 10.3 12.6 18 Precision equipment 1.5 1.4 0.6 0.8 1.1 0.8 0.8 20 Miscellaneous manufactured articles 1.2 1.6 0.9 1.3 1.1 1.1 1.1 Not classified 0.0 0.1 0.0 0.1 0.0 0.1 0.0
Source: WTO calculations, based on data provided by the Kyrgyz authorities.
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Table A1. 3 Merchandise exports by destination, 2006-12 (US$ million and %) 2006 2007 2008 2009 2010 2011 2012
Total exports (US$ million) 794.1 1,134.2 1,617.6 1,673.0 1,759.8 1,978.9 1,683.2 % of total America 0.8 0.4 0.3 3.3 6.1 0.1 1.1 United States 0.8 0.4 0.3 2.3 5.1 0.0 0.2 Other America 0.0 0.1 0.1 1.0 1.0 0.1 1.0 British Virgin Islands 0.0 0.0 0.0 0.0 0.0 0.0 0.8
Europe 34.0 30.3 41.8 42.4 28.8 49.1 39.1 EU(27) 4.4 6.5 11.7 13.5 4.5 2.0 3.2 Germany 0.3 0.6 1.1 0.3 0.3 0.5 1.0 Belgium 0.6 1.0 0.7 0.7 0.5 0.5 0.8 Bulgaria 0.2 0.7 0.2 0.2 0.3 0.3 0.5 France 0.0 0.0 6.7 11.1 2.2 0.1 0.2 Netherlands 0.4 0.3 0.1 0.2 0.1 0.1 0.2 EFTA 26.2 19.9 27.2 26.6 22.0 44.2 32.6 Switzerland 26.2 19.9 27.2 26.6 22.0 44.1 32.6 Other Europe 3.5 3.9 2.9 2.3 2.2 2.9 3.4 Turkey 3.4 3.8 2.8 2.2 2.1 2.8 3.0 Former Yugoslav Republic of 0.0 0.1 0.1 0.1 0.0 0.1 0.3 Macedonia
Commonwealth of Independent 47.7 50.0 47.8 45.0 44.9 38.3 52.5 States (CIS) Kazakhstan 20.5 18.0 11.4 22.1 25.6 14.6 24.1 Russian Federation 19.4 20.7 19.2 11.1 14.6 14.4 13.0 Uzbekistan 3.5 7.6 14.3 10.0 2.3 6.3 11.3 Tajikistan 3.0 2.5 1.7 0.9 0.9 1.8 2.4 Belarus 0.1 0.2 0.3 0.2 0.4 0.4 0.7 Ukraine 0.5 0.5 0.4 0.2 0.3 0.2 0.3 Turkmenistan 0.3 0.2 0.3 0.3 0.3 0.4 0.3 Azerbaijan 0.2 0.2 0.2 0.1 0.1 0.1 0.3
Africa 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Middle East 2.2 2.4 3.9 6.6 17.9 8.1 1.8 United Arab Emirates 1.1 1.3 3.1 6.1 17.2 7.6 1.0 Iran Islamic Republic 0.9 1.0 0.7 0.4 0.6 0.4 0.6
Asia 15.3 16.9 6.1 2.7 2.4 4.5 5.4 China 4.8 5.5 2.7 1.2 1.6 2.1 3.6 Japan 0.1 0.1 0.2 0.0 0.0 0.0 0.0 Six East Asian Traders 0.3 0.5 0.2 0.0 0.0 0.1 0.0 Other Asia 10.1 10.7 3.0 1.5 0.7 2.2 1.7 Afghanistan 9.4 10.4 2.8 1.1 0.5 1.2 1.5
Source: WTO calculations, based on data provided by the Kyrgyz authorities.
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Table A1. 4 Merchandise imports by origin, 2006-12 (US$ million and %) 2006 2007 2008 2009 2010 2011 2012 Total imports (US$ million) 1,718.2 2,412.1 4,072.4 3,040.2 3,223.1 4,261.2 5,373.9 % of total America 8.2 5.4 4.1 4.3 6.9 5.8 5.7 United States 5.7 4.0 2.9 3.3 5.9 4.9 4.7 Other America 2.5 1.5 1.2 1.0 0.9 0.9 1.0 Canada 1.9 1.0 0.8 0.6 0.6 0.5 0.5
Europe 14.9 12.3 17.1 12.9 12.4 13.5 14.0 EU(27) 12.2 9.4 14.6 9.9 9.2 10.4 10.3 Germany 2.3 2.2 8.2 3.3 2.7 3.4 3.7 Netherlands 1.6 1.5 1.0 1.6 0.8 1.0 1.1 Poland 0.8 0.7 0.6 0.6 0.8 0.7 0.7 France 1.4 0.7 0.4 0.7 1.0 0.8 0.6 United Kingdom 0.4 0.4 0.7 0.4 0.5 0.5 0.6 Sweden 1.0 0.3 0.7 0.3 0.2 0.4 0.5 Italy 0.8 0.4 0.5 0.3 0.3 0.8 0.4 Belgium 1.0 0.3 0.3 0.4 0.5 0.4 0.3 Latvia 0.1 0.3 0.2 0.2 0.2 0.2 0.3 Spain 0.1 0.1 0.1 0.1 0.3 0.3 0.3 EFTA 0.5 0.6 0.3 0.5 0.5 0.4 0.3 Switzerland 0.4 0.5 0.2 0.5 0.4 0.3 0.3 Other Europe 2.3 2.3 2.2 2.4 2.6 2.8 3.3 Turkey 2.3 2.1 2.2 2.4 2.6 2.7 3.3
Commonwealth of Independent 57.7 63.1 53.7 56.6 53.2 51.2 50.0 States (CIS) Russian Federation 38.0 40.5 36.6 35.9 33.6 33.6 33.2 Kazakhstan 11.6 12.9 9.2 11.2 12.0 9.6 9.7 Belarus 1.1 1.0 1.0 2.4 1.7 2.6 3.0 Ukraine 2.4 3.3 2.3 2.9 2.5 2.9 2.6 Uzbekistan 3.8 5.0 3.9 3.7 2.9 2.0 1.2
Africa 0.1 0.1 0.1 0.1 0.3 0.3 0.2
Middle East 1.2 0.9 0.7 0.5 0.7 0.6 0.4
Asia 17.9 18.2 24.3 25.7 26.6 28.5 29.7 China 14.3 14.7 17.9 20.5 20.7 21.7 22.5 Japan 0.8 0.7 3.2 2.2 2.7 3.9 4.0 Six East Asian Traders 1.9 1.8 2.3 2.0 2.0 2.0 2.1 Korea, Republic of 1.7 1.6 2.0 1.7 1.5 1.5 1.7 Other Asia 0.9 0.9 0.9 1.0 1.3 1.0 1.0 India 0.4 0.4 0.3 0.5 0.7 0.7 0.6
Source: WTO calculations, based on data provided by the Kyrgyz authorities.
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Table A1. 5 Trade in services, 2006-12 (US$ million) 2006 2007 2008 2009 2010 2011 2012 Services balance -82.0 79.9 -97.7 0.2 -196.5 5.8 -301.8 Exports 378.7 684.8 896.1 869.1 727.8 1,143.8 1,230.1 Transportation 56.6 139.3 146.3 134.9 150.4 168.9 181.3 Rail 20.1 34.4 46.0 35.0 37.9 30.3 32.5 Air 32.2 92.5 92.8 95.5 107.4 123.0 128.5 Road 1.7 2.9 2.2 2.2 3.7 14.2 12.8 Other 1.3 9.5 5.3 2.2 1.4 1.4 7.5 Travel 167.0 346.0 514.5 458.8 283.6 640.5 697.9 Business .. 148.8 221.2 197.3 122.0 275.4 300.1 Personal .. 197.2 293.3 261.5 161.7 365.1 397.8 Insurance 1.4 5.0 8.3 3.6 6.7 2.1 0.9 Government 27.3 30.7 11.6 10.3 14.6 13.5 15.5 Construction 19.7 16.8 20.8 18.8 32.8 34.9 33.4 Financial 2.0 3.7 13.5 10.9 0.6 1.8 3.5 Computer and information 1.3 1.1 1.4 1.3 3.1 1.4 2.1 Communications 10.1 12.0 16.4 9.3 19.9 15.3 11.3 Business 76.9 84.8 93.7 135.0 148.0 171.1 185.3 Other services 10.2 45.3 69.4 86.1 68.1 94.3 99.0 Imports 460.8 604.8 993.8 869.0 924.2 1,138.0 1,531.9 Transportation 178.0 337.2 488.7 412.5 417.0 501.0 642.7 Rail 109.2 212.2 329.5 277.8 280.6 300.6 396.6 Air 33.0 79.9 87.3 79.2 80.1 109.2 109.3 Road 28.0 23.5 35.5 29.9 40.1 76.3 96.0 Other 7.8 21.6 36.5 25.6 16.2 14.9 40.8 Travel 91.6 112.4 304.4 266.9 271.1 420.8 558.7 Business .. 59.6 161.3 141.4 143.7 223.0 296.1 Personal .. 52.8 143.1 125.4 127.4 197.8 262.6 Insurance 18.3 9.4 10.8 12.0 14.1 16.0 16.9 Government 4.8 5.2 5.5 9.2 9.1 8.6 8.8 Construction 3.3 11.8 10.5 18.3 11.9 13.5 8.9 Financial 3.6 9.0 9.1 4.0 17.1 6.9 8.0 Computer and information 1.7 4.4 14.6 16.2 13.6 10.8 14.9 Communications 5.9 7.4 12.6 9.2 12.8 12.1 4.8 Business 102.6 81.6 99.5 84.5 139.3 105.3 214.9 Other services 29.9 26.2 38.1 36.2 18.3 43.0 53.0
Source: National Bank of the Kyrgyz Republic online information. Available at: http://www.nbkr.kg/index1.jsp?item=138&lang=ENG [24.07.13]; and data provided by the Kyrgyz Republic.
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Table A2. 1 Selected notifications to the Central Registry of Notifications (CRN), 1 January 2007-30 June 2013
WTO Agreement Description Document symbola Date Agreement on Agriculture Article 12.1(b) - ER G/AG/N/KGZ/2 2008 G/AG/N/KGZ/3 2011 GATT 1994 Article XXVIII:5 Modification of G/MA/226 2008 schedules (reserve the right to modify schedules for a three- year period) G/MA/267 2011 Agreement on Subsidies and Countervailing Article 25.1 and GATT 1994 Article XVI:1 Subsidies G/SCM/N/186/KGZ 2010 Agreement on Safeguards Article 12.1(a) - initiation G/SG/N/6/KGZ/2 2009 G/SG/N/6/KGZ/1 G/SG/N/6/KGZ/3 2010 Article 12.1(b) - finding G/SG/N/10/KGZ/1; 2009 G/SG/N/8/KGZ/1/Suppl.1; G/SG/N/7/KGZ/1; G/SG/N/8/KGZ/1 Article 12.1(c) - decision G/SG/N/10/KGZ/1; 2009 G/SG/N/8/KGZ/1/Suppl.1; Article 12.4 G/SG/N/7/KGZ/1; 2009 G/SG/N/8/KGZ/1 Agreement on Technical Barriers to Trade Article 2.9 Technical regulations G/TBT/N/KGZ/1 2007 G/TBT/N/KGZ/2 G/TBT/N/KGZ/3 G/TBT/N/KGZ/11 2008 G/TBT/N/KGZ/10 G/TBT/N/KGZ/9 G/TBT/N/KGZ/14 2009 G/TBT/N/KGZ/15 G/TBT/N/KGZ/13 G/TBT/N/KGZ/12 G/TBT/N/KGZ/16 2010 G/TBT/N/KGZ/17 G/TBT/N/KGZ/18 G/TBT/N/KGZ/27 2011 G/TBT/N/KGZ/25 G/TBT/N/KGZ/26 G/TBT/N/KGZ/23 G/TBT/N/KGZ/24 G/TBT/N/KGZ/22 G/TBT/N/KGZ/19 G/TBT/N/KGZ/20 G/TBT/N/KGZ/21 G/TBT/N/KGZ/28 2012 G/TBT/N/KGZ/29 G/TBT/N/KGZ/30 G/TBT/N/KGZ/31 G/TBT/N/KGZ/32 G/TBT/N/KGZ/33 Article 5.6 Conformity G/TBT/N/KGZ/4 2007 assessment procedures G/TBT/N/KGZ/5 G/TBT/N/KGZ/6 G/TBT/N/KGZ/7 Article Unspecified G/TBT/N/KGZ/8 2007
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WTO Agreement Description Document symbola Date Agreement on Trade-Related Aspects of Intellectual Property Rights Article 63.2 - legislation Laws/regulations; IP/N/1/KGZ/P/2 1999 amendment of a law/regulation IP/N/1/KGZ/L/1 IP/N/1/KGZ/P/3 2005 IP/N/1/KGZ/C/4; IP/N/1/KGZ/I/3 IP/N/1/KGZ/C/6 2006 IP/N/1/KGZ/I/6 IP/N/1/KGZ/P/5 IP/N/1/KGZ/T/1 2008 IP/N/1/KGZ/3 Article 69 Kyrgyz Republic IP/N/3/KGZ/1 2013 Switzerland IP/N/3/Rev.11 2010 Turkey IP/N/3/Rev.9 2005 IP/N/3/Rev.10 2008
a In case of recurring notifications, only the most recent document is listed. Source: WTO Central Registry of Notifications.
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Table A3. 1 Tariff summary, 2012 MFN applied Bound Number rate of lines Average Range Duty free average (%) (%) (%) (%) Total 10,990 5.0 0-20 46.4 7.8
HS 01-24 2,722 9.1 0-20 14.5 12.0 HS 25-97 8,268 3.7 0-15 56.9 6.4 By WTO category WTO agricultural products 2,474 8.4 0-20 21.4 12.1 Animals and products thereof 509 8.6 0-10 13.6 11.7 Dairy products 224 10.3 10-15 0.0 11.0 Fruit, vegetables, and plants 520 11.6 0-20 12.9 15.7 Coffee and tea 74 7.3 0-10 8.1 9.5 Cereals and preparations 239 7.2 0-15 25.9 12.7 Oils seeds, fats, oil and their products 183 6.6 0-15 27.9 11.4 Sugars and confectionary 76 3.6 0-10 46.1 8.3 Beverages, spirits and tobacco 340 10.8 0-20 8.5 11.3 Cotton 6 0.0 0-0 100.0 10.0 Other agricultural products, n.e.s. 303 2.2 0-10 67.3 10.3 WTO non-agricultural products 8,516 4.1 0-15 53.7 6.6 Fish and fishery products 401 10.1 5-15 0.0 10.1 Minerals and metals 1,610 3.3 0-10 61.0 5.0 Chemicals and photographic supplies 1,441 2.4 0-15 52.7 5.4 Wood, pulp, paper and furniture 488 0.4 0-10 96.1 0.6 Textiles 891 6.6 0-12 27.3 8.7 Clothing 337 11.5 0-12 1.2 11.9 Leather, rubber, footwear and travel 378 4.9 0-10 50.5 9.3 goods Non-electric machinery 1,181 2.3 0-10 76.7 6.5 Electric machinery 609 3.1 0-15 65.8 6.8 Transport equipment 378 6.2 0-10 35.7 8.8 Non-agricultural products, news. 761 3.9 0-10 59.8 6.6 Petroleum 41 1.7 0-5 65.9 10.0 By stage of processing First stage of processing 1,311 5.4 0-15 40.1 9.8 Semi-processed products 3,016 3.2 0-15 54.8 5.8 Fully processed products 6,663 5.8 0-20 43.9 8.3
By HS section 01 Live animals and products 1,078 9.3 0-15 7.2 11.3 02 Vegetable products 571 6.8 0-15 35.9 13.6 03 Fats and oils 140 9.0 0-15 9.3 12.6 04 Prepared food, beverages and tobacco 933 10.2 0-20 10.7 11.8 05 Mineral products 249 4.0 0-10 22.5 9.5 06 Chemicals and products thereof 1,310 2.7 0-15 46.9 5.3 07 Plastics, rubber, and articles thereof 373 1.2 0-10 87.9 7.5 08 Raw hides and skins, leather, and 224 2.1 0-10 79.0 8.5 products thereof 09 Wood and articles of wood 223 0.0 0-0 100.0 1.6 10 Pulp of wood, paper and paperboard 236 0.0 0-0 100.0 0.0 11 Textiles and textile articles 1,185 7.9 0-12 19.8 9.6 12 Footwear, headgear, etc. 161 9.3 0-10 6.8 10.0 13 Articles of stone, plaster, cement 269 8.0 0-10 19.7 9.7 14 Precious stones and metals, pearls, 63 9.8 0-10 1.6 10.0 articles thereof 15 Base metals and articles thereof 1,058 1.5 0-10 83.5 2.6 16 Machinery, electrical equipment, etc. 1,869 2.6 0-15 72.6 6.5
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MFN applied Bound Number rate of lines Average Range Duty free average (%) (%) (%) (%) 17 Transport equipment 397 6.3 0-10 35.0 8.8 18 Precision equipment 368 3.1 0-10 66.3 5.1 19 Arms and ammunition 27 0.0 0-0 100.0 15.0 20 Miscellaneous manufactured articles 249 5.3 0-10 46.6 7.3 21 Works of art, etc. 7 2.9 0-10 71.4 14.3
Note: Calculations for averages are based on national tariffs line level (10-digit), excluding specific rates and including the ad valorem part of mixed rates. Source: WTO Secretariat calculations, based on data provided by the authorities of the Kyrgyz Republic.
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