Worldwide: Kazakhstan's Compliance With The "Most Favored Nation" Policy

Last Updated: 3 August 2016
Article by Maxim Sukhoterin

On October 18, 2011, the heads of several CIS member states signed a treaty (hereinafter, "Treaty") to establish a free trade zone. Among its signatories were Kazakhstan, Russia, Belarus, Ukraine, Kyrgyzstan, Armenia, Moldova, and Tajikistan (Uzbekistan also joined the Treaty later on).

Oddly, when the Treaty came into effect, these countries started imposing export duties in the trade between them, although the prior Free Trade Agreement of 1994 had exempted almost all export, provided that the goods were produced in the member states.

Reference information.

In Annex No.1 to the Treaty, the parties consolidated mainly the same rates for export customs duties, as prescribed by national laws of these countries with the export of goods to any other third country.

For example, Annex 1 to the said Treaty provides for the export customs duty for scrap and waste ferrous metals in the amount of 15%, but not less than EUR 20 per 1 ton.

However, similar rate of export customs duty on specified goods provided for in national legislation of Kazakhstan (the decision of the Government of the Republic of Kazakhstan No. 520 dated June 7, 2010) (but with one condition: the export is exempted from the payment of duty for scrap exported to European Union countries).

The situation is similar with the Russian export customs duties.

The moment that with the adoption of the new Treaty on the free trade zone the trade between the CIS countries has become far less flexible, as it was in the period of the Agreement on the establishment of a free trade zone, we will leave without consideration in this article.

However, given the Treaty was ratified by Kazakhstan under the relevant Act dd. October 25, 2012 and entered into force on December 8, 2012.

From that moment, the customs authorities of Kazakhstan began to levy customs duty on the export of goods in these countries, while, as noted above, during the period of the Agreement on Free Trade Area dd. ​​April 15, 1994 in the CIS countries export duties were not levied (in case of provision of a certificate of the origin of goods).

Now, on the example of export of scrap and waste of ferrous metals (export of this product is quite common, in addition, scrap metal is subject to export duties), let's consider the use by Kazakhstan of the most favored nation treatment as one of the most important principles of international trade.

In the theory of international trade the regime of the most favored nation treatment is an economic and legal term meaning the establishment of international agreements and the provision of agreements in which each contracting party undertakes to give the other party, its individual and legal persons similar favorable conditions in the sphere of ​​economic, trade and other relations such as it provides or will provide in the future to any third State or to its individual or legal persons.

With reference to the Treaty on free trade area the regime of the most favored nation treatment is set in paragraph 3 and paragraph 4 of Article 2 of the Treaty:

"If the Party using the export duty in accordance with Annex 1 to this Treaty cancels or reduces its level in relation to a third country, this change applies to the Parties.

Unless otherwise provided in the Treaty, customs duties are not applied in a manner which would lead to an increase in discrimination between the Parties and third countries".

As mentioned above, the provision contained in the national legislation of Kazakhstan that the export of scrap and waste of ferrous metal in the European Union is exempted from payment of export customs duties, whereas the Treaty has provided a 15% customs duty on export of scrap was the indicator, which spawned the need for the application of the regime of the most favored nation treatment.

In other words, based on the meaning of paragraphs 3 and 4 of Article 2 of the Treaty, during the collection of export duty on scrap and waste of ferrous metals in the countries – parties to the Treaty there was the existence of discrimination between the parties to the Treaty and third countries (in this case, the European Union countries), which was unacceptable, because it was contrary to the principle of the most favored nation treatment set in its paragraphs.

It should be noted that the Ministry of Economic Development and Trade of the Republic of Kazakhstan (the central state body  of Kazakhstan, which forms the tax, customs and foreign trade policy), having carefully studied the position of the largest Kazakh Association for scrap procurement – Association "Republican Union of Secondary Metallurgy Industrialists" concerning this issue was forced to send in address of the customs control Committee of the Ministry of Finance of the Republic of Kazakhstan an explanation, pointing to the inadmissibility of levying export duties on ferrous scrap in case of its exports to the countries – parties of the Treaty on free trade zone in connection with the application of the most favored nation treatment.

It is necessary to mention another aspect

Kazakhstan is a party to bilateral agreements on free trade zone with Georgia and Azerbaijan (these countries are not parties to the Treaty on the free trade zone, but are parties to the Agreement on the Free Trade Area dd. ​​April 15, 1994), according to which the export customs duties shall not be charged to the export of goods (including scrap) in these countries, as evidenced by the letter of the Ministry of economic development and trade of the Republic of Kazakhstan dated January 28, 2015 and the customs control Committee of the Ministry of Finance of the Republic of Kazakhstan dated February 20, 2013 and April 15, 2014.

These agreements include:

  1. Agreement between the Government of Kazakhstan and Georgia on Free Trade dd. November 11, 1997, ratified by the Law of the Republic of Kazakhstan dated June 23, 1999 No. 395;
  2. Agreement between the Government of Kazakhstan and Azerbaijan on free trade dd. June 10, 1997, ratified by the Law of the Republic of Kazakhstan dated June 23, 1999 No. 394.

These agreements are currently in force.

Accordingly, the regime of the most favored nation treatment specified in paragraph 3 and 4 of Article 2 of the Treaty on the free trade zone it can also be concluded that the levying of customs duties when exporting goods to the countries – parties of the Treaty on Free Trade Zone with simultaneous exemption from such duties for the export of goods to Azerbaijan and Georgia also violates the principle of most favored nation.

Therefore, collection of export customs duties on goods exported from Kazakhstan to the countries – parties of the Treaty on free trade zone, with the simultaneous exemption from taxes on goods exported to Georgia or Azerbaijan, is also contrary to international treaty having precedence over national law by virtue of paragraph 3 article 4 of the Constitution of the Republic of Kazakhstan.

The Ministry of Economic Development and Trade of the Republic of Kazakhstan this time did not recognize the violation of this regime (as evidenced by the response of the Ministry dated January 28, 2015 an appeal of the Association "Republican Union of Secondary Metallurgy Industrialists ") as an unconvincing ground, although it is clear that the recognition by the Ministry of actual fact would mean abandoning the collection of export duties, refund of overpaid taxes from the budget in connection with the violation of fundamental principles of international trade, etc.

At the same time, it should be noted that on July 27, 2015 Kazakhstan joined the World Trade Organization (WTO), signed a corresponding protocol of accession of the Republic of Kazakhstan to the Marrakesh Agreement on establishment of the World Trade Organization dd. April 15, 1994.

October 12, 2015 the President of the Republic of Kazakhstan signed the Law on Ratification of this Protocol.

Thus, since the ratification of the said Protocol the General Agreement on Tariffs and Trade (GATT) becomes binding for Kazakhstan, with all its annexes, which is the founding document of the WTO.

The very first article of the GATT is called "general regime of the most-favored nation treatment" which precisely regulates the regime of the most favored nation treatment:

"ARTICLE I. GENERAL REGIME OF THE MOST FAVORED NATION TREATMENT 1. With respect to customs duties and charges of any kind imposed on the import and export, or in connection with it, or imposed on the international transfer of payments for imports or exports, and on the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2  and 4 of article III, any advantage, favor, privilege or immunity granted by any contracting party to any product originating from or destined for any other country shall be immediately and unconditionally provide to the similar product originating from or destined for the territories of all other contracting parties".

The inclusion of this regime in the very first article of the GATT shows the extreme importance of this principle for international trade.

From this point, any reduced customs duty or exemption from its payment in respect of whatever country must necessarily extend to 161 countries – members of the WTO.

That's why I think it is very important for Kazakhstan to carefully analyze all international agreements concluded with the participation of Kazakhstan, which reduce the rate of customs duty or wholly exempt a particular goods from taxes when exported to certain countries (imported from those or other countries) (as in the example with Azerbaijan, Georgia, etc.) and, if necessary, to denounce such international agreement, since by virtue of the regime of most-favored nation treatment such benefits should be automatically extended to 161 countries included in the WTO.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions