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Smuggled Chinese goods fuel tensions in Russia-led Asian bloc

International observers to monitor Kazakh-Kyrgyz border to address spat

Presidents of Eurasian Economic Union member countries attend a news conference after a meeting in Moscow   © Reuters

ALMATY -- Kyrgyzstan's free-trade partners have long turned a blind eye to the smuggled Chinese goods that slipped through its borders but a political spat between it and Kazakhstan has brought the issue to the fore.

For two months, Kazakhstan closed its border to Chinese goods and Kyrgyz food and agricultural products that were moving into the Eurasian Economic Union, raising concerns over Kyrgyzstan's ability to serve as a transit hub between China and the economic bloc. Aside from Kyrgyzstan and Kazakhstan, the grouping of former Soviet republics includes Russia, Belarus and Armenia.

The spat highlights usually hidden tensions between Russian and Chinese visions for the integration of the Central Asian republics; the EEU and Beijing's Belt and Road Initiative both aim to smooth cross-border trade flows, but for the EEU, this benefit is intended for member states only.

Kazakhstan's move was motivated both by its annoyance with Kyrgyzstan for not clamping down on the smuggling believed to have cost the EEU $400 million in import tax revenues last year and a quarrel between President Nursultan Nazarbayev and Kyrgyz counterpart Almazbek Atambayev, who left office Nov. 24.

The border closure forced Kyrgyzstan to acknowledge the smuggling problem and it has now agreed to allow customs officials from other EEU member states, as well as Kazakhstan, to monitor the flow of goods across its border with China.

"In these past two years, there have been many issues concerning Kyrgyzstan's compliance with all those requirements set for EEU membership and our government has known about it, but it is only now the current situation has made these problems topical," said Sanat Kushkumbayev, an analyst at the Kazakhstan Institute for Strategic Studies.

On Kazakhstan's part, there is some degree of schadenfreude. It had opposed Kyrgyzstan's EEU membership bid and dragged its feet on ratifying the deal for it to join. Despite pressure from Moscow, Kazakhstan finally only gave its nod in August 2015. It then pledged $100 million in technical aid to help improve customs infrastructure on Kyrgyzstan's borders, in large part to give it some control over the flow of goods.

Following a meeting between Nazarbayev and Sooronbay Jeenbekov, Kyrgyzstan's new president, on the sidelines of a regional summit in Minsk on Nov. 30, Kazakhstan eased the border clampdown and hundreds of parked trucks were allowed to enter the country. But Nazarbayev warned the border would remain open only if Kyrgyzstan showed its commitment to fighting smuggling.

A Kazakh clampdown on border crossings from Kyrgyzstan in late November saw hundreds of vehicles stuck for long periods. (Photo by Naubet Bisenov)

Kazakh businesses have also seized the opportunity to urge the government to level the playing field. "It shows that the situation has become complex [on the border] and it turns out that we had huge smuggling coming through," said billionaire businessman Timur Kulibayev, Nazarbayev's son-in-law. "So did we really not know about this before?"

First to bend

Kyrgyzstan had little choice but to work out a solution to the political standoff with its much larger neighbor. Prime Minister Sapar Isakov said a conservative estimate of the damage inflicted on the economy by the border closure was 1% of gross domestic product or $64 million. Kyrgyz authorities also estimate that the closure caused a tax shortfall of around $30 million that will directly affect social programs.

On a micro scale, small businesses that had been involved in the sale and re-export of Chinese goods, mostly clothes and footwear, were also badly hit. Bakhtyiar Bakasuulu, a professor at Kyrgyz Economic University in Bishkek, said the border closure had practically stopped trade at Bishkek's major Dordoy market, which provides employment to tens of thousands.

"Transit operations directly concern practically 30% of the country's population," said Bakasuulu. The professor said the spat also pointed to problems within the EEU as member states can flout agreement rules and impose barriers to internal trade for political reasons by citing sanitary or technical regulations.

After the peacemaking meeting of their presidents, Kyrgyzstan withdrew formal complaints it had filed against Kazakhstan with the Eurasian Economic Commission and the World Trade Organization.

The political fallout between the two neighbors started in late September when Atambayev rebuked Nazarbayev for meddling in Kyrgyz politics during the country's presidential election by hosting a visit by Omurbek Babanov, who was running against Jeenbekov, Atambayev's protege. The two leaders then traded insults, with Atambayev suggesting Nazabayev led a corrupt government.

Jeenbekov won Central Asia's first competitive democratic presidential election on Oct. 15 with 54.8% of the vote on a 56% turnout. The Kyrgyz constitution, adopted in 2010, provides for a single six-year presidential term. Atambayev became the first full-term president in Central Asia to depart from the post in a constitutional handover.

When Atambayev continued with his relentless charges against Nazarbayev personally and Kazakhstan in general, Astana went further to impose a near-total blockade of goods from Kyrgyzstan to larger markets within the bloc, a tactic widely used by Moscow to punish former Soviet countries for attempting to pursue independent foreign policy.

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