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Working Party on the Accession of Kazakhstan - Draft report of the Working Party on the Accession of Kazakhstan - Revision
日期:2015/06/11
作者:Kazakhstan
文件編號:WT/ACC/SPEC/KAZ/9/Rev.15
附件下載:WTACCSPECKAZ9R15.doc
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DRAFT REPORT OF THE WORKING PARTY ON THE
ACCESSION OF kazakhstan

Revision

       

 


TABLE OF CONTENTS

I.         INTRODUCTION.. 7

DOCUMENTATION PROVIDED.. 7

INTRODUCTORY STATEMENTS. 8

II.       ECONOMIC POLICIES. 9

-           Monetary and Fiscal Policy. 9

-           Foreign Exchange and Payments. 14

-           Investment Regime. 22

-           State Ownership, State-Trading Entities and Privatization. 31

(a)     Privatization. 31

(b)     State-owned and State-controlled Enterprises, Enterprises with Special and Exclusive Privileges  35

-           Pricing Policies. 48

-           Competition Policy. 56

III.    FRAMEWORK FOR MAKING AND ENFORCING POLICIES. 65

-           Powers of Executive, Legislative and Judicial Branches of Government. 65

-           Framework of the Eurasian Economic Union among the Republic of Kazakhstan, the Russian Federation and the Republic of Belarus. 69

(a)     Legal Framework Establishing the Eurasian Economic Union. 69

(b)     Eurasian Economic Union Structure and Competency in the Area of Trade. 69

(c)      The Supreme Eurasian Economic Council 70

(d)     The Eurasian Intergovernmental Council 70

(e)     The Eurasian Economic Commission. 71

(f)      The Council of the Commission. 71

(g)     The Collegium of the Commission. 72

(h)     Decision-making within the Bodies of the EAEU.. 75

(i)       The Court of the Eurasian Economic Union. 75

(j)      Transparency. 77

(k)     Implementation of WTO Commitments under the EAEU Regime. 78

-           Government Entities Responsible for Making and Implementing Policies Affecting Foreign Trade; Right of Appeal 80

IV.      POLICIES AFFECTING TRADE IN GOODS. 82

-           Registration Requirements for Import and Export Operations. 82

-           (a) Ethyl Spirits and Alcohol Products. 88

-           (b) Pharmaceuticals. 89

-           (c) Products containing cryptographic capabilities, including goods with encryption technology and special technical devices. 90

-           (d) Conclusion. 91

A.        IMPORT REGULATIONS. 92

-           Ordinary Customs Duties. 92

-           Other Duties and Charges. 99

-           Tariff Exemptions. 99

-           Tariff Rate Quotas. 104

-           Fees and Charges for Services Rendered. 109

-           Application of Internal Taxes to Imports. 111

-           Quantitative Import Restrictions, including Prohibitions, Quotas and Licensing Systems  119

-           (a) Quantitative Import Restrictions, including Prohibitions and Quotas. 121

-           (b) Import Licensing. 123

-           Customs Valuation. 137

-           Rules of Origin. 146

-           Other Customs Formalities. 152

-           Preshipment Inspection. 154

-           Anti-dumping, Countervailing Duty and Safeguard Regimes. 155

-           (a) Transitional regime. 156

-           (b) Regime established under the EAEU Treaty. 157

B.        EXPORT REGULATIONS. 165

-           Customs Tariffs, Fees and Charges for Services Rendered, Application of Internal Taxes to Exports  165

-           Quantitative Export Restrictions, including Prohibitions and Quotas. 170

-           Export Licensing Procedures. 173

C.        INTERNAL POLICIES AFFECTING FOREIGN TRADE IN GOODS. 175

-           Industrial Policy, including Subsidies. 175

-           Technical Barriers to Trade, Standards and Certification. 184

(a)     Legal Framework. 184

(b)     Institutions. 192

(c)      Technical Regulations, International and National Standards, and Conformity Assessment Procedures. 194

-           (i) Technical Regulations. 194

-           (ii) Technical Requirements Not Subject to Law No. 603-II "On Technical Regulation" of 9 November 2004. 199

-           (iii) Voluntary National and International Standards. 200

-           (iv) Disposition of Mandatory National Standards of Kazakhstan. 201

-           (v) Conformity Assessment Procedures including the Accreditation of Conformity Assessment Bodies. 203

(d)     Transparency. 214

-           Sanitary and Phytosanitary Measures. 217

(a)     Legislative Framework. 217

(b)     Competent Authorities for the Regulation of Trade in Agricultural Products. 221

-           (i) EAEU Authorities and Responsibilities. 221

-           (ii) National Authorities. 223

(c)      Development of Technical Regulations/Mandatory Requirements on SPS. 224

(d)     Trade in Goods Subject to Veterinary Control 232

-           (i) Veterinary Certificates. 234

-           (ii) Establishment Approval, Register and Inspections. 240

-           (iii) Import Permits. 258

-           (iv) Transit Permits. 263

(e)     Trade in Goods Subject to Phytosanitary Control 265

(f)      Protection of Human Health. 271

(g)     Compliance of the SPS Regime with Specific Provisions of the  WTO SPS Agreement  275

-           (i) Harmonization with International Standards and Norms. 275

-           (ii) Risk Assessment. 279

-           (iii) Regionalization. 282

-           (iv) Equivalence. 283

-           (v) Non-discrimination. 284

(h)     Transparency, Notification and Enquiry Point Obligations. 285

(i)       Proportionality, Necessity, and Reasonableness. 289

(j)      Conclusion. 290

-           Trade-Related Investment Measures. 290

-           Free Zones, Special Economic Areas. 298

-           (a) EAEU Regulation of SEZs. 299

-           (b) Basic Law on SEZs. 302

-           (c) Customs and Tax Legislation of the Republic of Kazakhstan. 304

-           (d) Free Warehouse Customs Regime. 306

-           Government Procurement. 309

-           Transit. 314

-           Government-mandated Counter-trade and Barter. 318

-           Agricultural Policies. 318

(a)     Imports. 318

(b)     Exports. 318

(c)      Internal policies. 319

-           Trade in Civil Aircraft. 324

V.        TRADE-RELATED INTELLECTUAL PROPERTY REGIME. 325

-           GENERAL. 325

-           Industrial Property Protection. 325

-           Responsible Agencies for Policy Formulation and Implementation. 327

-           Participation in International Intellectual Property Agreements. 328

-           Application of National and MFN Treatment to Foreign Nationals. 330

-           Fees and Taxes. 331

-           SUBSTANTIVE STANDARDS OF PROTECTION, INCLUDING PROCEDURES FOR THE ACQUISITION AND MAINTENANCE OF INTELLECTUAL PROPERTY RIGHTS. 332

-           Copyright and Related Rights. 332

-           Trademarks, including Service Marks. 334

-           Geographical Indications, including Appellations of Origin. 336

-           Industrial Designs. 341

-           Patents. 341

-           Plant Variety Protection. 345

-           Layout Designs of Integrated Circuits. 346

-           Requirements on Undisclosed Information, including Trade Secrets and Test Data. 346

-           ENFORCEMENT. 349

-           Civil Judicial Procedures and Remedies. 349

-           Provisional Measures. 351

-           Administrative Procedures and Remedies. 351

-           Special Border Measures. 353

-           Criminal Procedures. 355

VI.      POLICIES AFFECTING TRADE IN SERVICES. 358

VII.    TRANSPARENCY. 365

-           Publication of Information on Trade. 365

-           Notifications. 368

VIII. TRADE AGREEMENTS. 369

CONCLUSIONS. 377

ANNEX 1. 379

ANNEX 2. 398

ANNEX 3(A). 417

ANNEX 3(B). 418

ANNEX 3(C). 419

ANNEX 3(D). 420

ANNEX 3(E). 421

ANNEX 3(F). 422

ANNEX 3(G). 424

ANNEX 3(H). 425

ANNEX 4. 426

ANNEX 5(A). 429

ANNEX 5(B). 430

ANNEX 6. 432

ANNEX 7. 457

ANNEX 8. 470

ANNEX 9. 471

ANNEX 10. 472

ANNEX 11. 474

ANNEX 12. 479

ANNEX 13. 480

ANNEX 14(A). 481

ANNEX 14(B). 483

ANNEX 15(A). 485

ANNEX 15(B). 487

ANNEX 15(C). 489

ANNEX 15(D). 491

ANNEX 16. 492

ANNEX 17(A). 493

ANNEX 17(B). 494

ANNEX 18. 495

ANNEX 19. 496

ANNEX 20. 514

ANNEX 21. 538

ANNEX 22(A). 539

ANNEX 22(B). 541

ANNEX 22(C). 542

ANNEX 23. 543

ANNEX 24. 550

APPENDIX. 553

 


I.     Introduction

1.          The Government of the Republic of Kazakhstan (hereinafter referred to as Kazakhstan) applied for accession (WT/ACC/KAZ/1) to the World Trade Organization (WTO) on 29 January 1996.  At its meeting on 6 February 1996, the General Council established a Working Party to examine the application of the Government of the Republic of Kazakhstan to accede to the WTO under Article XII of the Marrakesh Agreement establishing the World Trade Organization (document WT/GC/M/10).  The terms of reference and the membership of the Working Party are reproduced in document WT/ACC/KAZ/2/Rev.40.

2.          The Working Party met on 19-20 March and on 9 October 1997 under the Chairmanship of H.E. Mr. B. Ekblom (Finland); on 9 October 1998, 12-13 July 2001, and on 13 December 2002 under the Chairmanship of H.E. Mr. P. Huhtaniemi (Finland); on 4 March 2004, 3 November 2004, 7 June 2005, 1 November 2006, and on 17 July 2008 under the Chairmanship of H.E. Mr. V. Himanen (Finland); on 18 April 2012 under the Chairmanship of H.E. Mr. H. Himanen (Finland);  on 24 July 2012, 5 October 2012, 10 December 2012, 20 March 2013, 6 June 2013, 23 July 2013,  11 October 2013, 23 July 2014, 26 September 2014 […] under the Chairmanship of H.E. Mr. V. Himanen (Finland). 

DOCUMENTATION PROVIDED

3.          The Working Party had before it, to serve as a basis for its discussions, a Memorandum on the Foreign Trade Regime of the Republic of Kazakhstan (WT/ACC/KAZ/3, WT/ACC/KAZ/3/Add.1), a Survey of the Foreign Trade Regime of the Republic of Kazakhstan (WT/ACC/KAZ/40), the questions submitted by Members of the Working Party on the foreign trade regime of the Republic of Kazakhstan, together with the replies thereto (WT/ACC/KAZ/6, WT/ACC/KAZ/6/Add.1, WT/ACC/KAZ/6/Add.2, WT/ACC/KAZ/10, WT/ACC/KAZ/11, WT/ACC/KAZ/14, WT/ACC/KAZ/22, WT/ACC/KAZ/37, WT/ACC/KAZ/37/Add.1, WT/ACC/KAZ/37/Add.2, WT/ACC/KAZ/37/Add.3, WT/ACC/KAZ/37/Add.3/Corr.1, WT/ACC/KAZ/50,  WT/ACC/KAZ/50/Corr.1, WT/ACC/KAZ/57, WT/ACC/KAZ/63, WT/ACC/KAZ/66, WT/ACC/KAZ/67, WT/ACC/KAZ/70, WT/ACC/KAZ/71, WT/ACC/KAZ/72, WT/ACC/KAZ/75, WT/ACC/KAZ/77, WT/ACC/KAZ/78, WT/ACC/KAZ/83, WT/ACC/KAZ/87), and other information provided by the authorities of the Republic of Kazakhstan (WT/ACC/KAZ/8, WT/ACC/KAZ/12, WT/ACC/KAZ/17, WT/ACC/KAZ/19, WT/ACC/KAZ/24, WT/ACC/KAZ/25, WT/ACC/KAZ/26, WT/ACC/KAZ/27/Rev.1, WT/ACC/KAZ/28, WT/ACC/KAZ/29, WT/ACC/KAZ/30, WT/ACC/KAZ/31, WT/ACC/KAZ/32/Rev.2, WT/ACC/KAZ/34/Rev.3, WT/ACC/KAZ/35, WT/ACC/KAZ/41, WT/ACC/KAZ/43/Rev.1, WT/ACC/KAZ/44, WT/ACC/KAZ/45, WT/ACC/KAZ/46, WT/ACC/KAZ/47, WT/ACC/KAZ/48, WT/ACC/KAZ/51, WT/ACC/KAZ/52, WT/ACC/KAZ/53, WT/ACC/KAZ/54, WT/ACC/KAZ/55, WT/ACC/KAZ/58/Rev.3, WT/ACC/KAZ/59, WT/ACC/KAZ/60/Rev.2, WT/ACC/KAZ/61/Rev.1, WT/ACC/KAZ/64, WT/ACC/KAZ/65, WT/ACC/KAZ/73/Rev.9, WT/ACC/KAZ/74 and WT/ACC/KAZ/88), including the legislative texts and other documentation listed in Annex 1

INTRODUCTORY STATEMENTS

4.          The representative of Kazakhstan recalled that the Republic of Kazakhstan had declared its independence on 16 December 1991.  Kazakhstan had since implemented a programme of structural reforms with the objective to ensure transition to a market economy and sustainable economic growth.  Significant progress was achieved in such important areas as trade and price liberalization, privatization, competition and fiscal and monetary reforms.

5.          The foundations of Kazakhstan's reform programme consisted of a legal and regulatory regime based upon internationally accepted standards and conducive to trade and investment.  In particular, Kazakhstan liberalized its trade regime by substantially reducing import and export licensing requirements to a limited number of goods; and abolishing State‑trading monopoly and non‑tariff barriers to trade such as import and export quotas.  In the sphere of services market access, Kazakhstan established a legal and regulatory framework, which eliminated barriers to entry and guaranteed fair competition.

6.          Key trade and investment legislation adhered to WTO principles by applying a non‑discriminatory regime to products and services regardless of their origin and national treatment towards foreign investors.  The Customs Code was based on the WTO and WCO norms, thus ensuring transparency of customs procedures and timely processing of goods.  The Government of Kazakhstan had also been undertaking important steps to bring its legislation into conformity with WTO norms, most notably, in the spheres of technical regulation, sanitary and phytosanitary measures, protection of intellectual property rights, import licensing, etc.

7.          Kazakhstan was ready to become a member of the WTO and to fully integrate into the multilateral trading system.  This willingness was expressed when the Government of the Republic of Kazakhstan submitted a formal application for WTO accession on 29 January 1996.

8.          Members of the Working Party welcomed the application of the Republic of Kazakhstan to join the WTO and pledged their full support for the accession process.   Members acknowledged the scope of the reforms and steps undertaken by the Government of Kazakhstan in order to establish a market-oriented economy and its strong commitment to integration to the multilateral trading system. They also noted that Kazakhstan played an important role in trade flows on the Eurasian continent and therefore its membership would strengthen the Organization and the world economy.

9.          The Working Party reviewed the economic policies and foreign trade regime of Kazakhstan and the possible terms of a draft Protocol of Accession.  The views expressed by Members of the Working Party and the various aspects of Kazakhstan's foreign trade regime, and on the terms and conditions of Kazakhstan's accession to the WTO, are summarized in paragraphs 10 to 1174 below.

II.    ECONOMIC POLICIES

-       Monetary and Fiscal Policy

10.      The representative of Kazakhstan said that the National Bank of the Republic of Kazakhstan (NBRK) was the sole authority determining and implementing the State monetary and credit policy.  Kazakhstan had a two-tier banking system, in which the NBRK represented the upper (first) tier, while all other banks represented the lower (second) tier.  Within the limits of its authority, the NBRK represented the interests of the Republic of Kazakhstan in relations with other countries' central banks and other banks; international banks; and other financial and credit institutions.  The NBRK was not guided by the aim of gaining profit in performing its tasks.  The NBRK was independent, within the limits of its authority granted by law.  Representative and executive bodies had no authority to interfere in the activity of the NBRK, its branches, representative offices and organizations.

11.      According to Law No. 2155 "On the National Bank of Kazakhstan" of 30 March 1995 (as amended on 5 July 2012), the primary goal of the monetary policy of the NBRK was to ensure price stability.  To accomplish this primary goal, the NBRK was assigned with the following tasks:  (i) development and implementation of the State's monetary policy; (ii) support of the payment system; (iii) foreign exchange regulation and foreign exchange control; (iv) facilitation of the financial system's stability; (v) regulation, control and supervision of the financial market and financial organizations; (vi) protection of rights and interests of financial services consumers; and (vii) statistical activity in the monetary sphere and in the external sector, as well as other tasks in accordance with the laws of Kazakhstan and the acts of the President.  The NBRK also performed the function of a lender of last resort and was entitled to carry out other transactions, authorized under Kazakhstan's law, in accordance with the decisions of its Board.  Since 1998, the NBRK had not financed the budget deficit of the State. 

12.      In order to conduct its monetary policy, the NBRK provided loans to commercial banks; took deposits in national and foreign currencies; undertook interventions on the foreign exchange market; issued short-term notes; conducted open market transactions with securities; and provided commercial bill refinancing.  The instruments used by the NBRK for the conduct of monetary policy included setting of the official refinancing rate and interest rates on main transactions, as well as establishing minimum reserve requirements. 

13.      In 2011, inflation in Kazakhstan had been measured at 7.4%.  In 2012, one of the goals of the NBRK had been to implement monetary policy directed at the provision of price stability and maintenance of annual inflation at a low level, which would be adequate with existing macroeconomic conditions. 

14.      In order to control the amount and remuneration rates on bank deposits and loans, the NBRK used the normative standards for minimum reserve requirements.  In exceptional cases, if it was not possible to slow down inflation by means of indirect monetary control, the NBRK had the authority to establish direct quantitative restrictions on particular types of transactions.  Since the introduction of the national currency in 1993, the tenge (KZT), the NBRK had not established maximum rates and had not established credit restrictions since 1995. 

15.      The main instruments of rate control on the financial market and sterilization of banks' surplus liquidity were short-term banknotes and the deposits of second tier banks in the NBRK.  The short‑term banknotes were State securities, issued by the NBRK.  The supply of short-term banknotes was determined on the basis of constructing a financial instruments yield curve for a period of up to one year.  In 2011, the liquidity situation on the monetary market had remained almost the same.  The conversion period for short‑term banknotes was kept at existing levels - three, six and nine months.

16.      In response to questions on the currency regime, the representative of Kazakhstan said that the earlier regulatory procedure for currency transactions had been completely revoked as of 1 January 2007.  The existing currency regulation (registration and notification) did not limit currency transactions and was aimed at providing statistical monitoring of currency transactions.  The simplification of requirements for currency transactions conducted by residents, including transactions with foreign assets, was a major goal for further advancement of the currency regime and currency control.  In order to control risks relating to currency transactions, Kazakhstan would be taking measures to improve the effectiveness of prudential regulation and risk management by banks, pension funds and insurance companies. 

17.      Asked to clarify the term "resident" for the purposes of the registration and notification regime, the representative of Kazakhstan said that, according to Article 1 of Law No. 57-III "On Currency Regulation and Currency Control" of 13 June 2005, "residents" were defined as:  (i) citizens of Kazakhstan, including those located temporarily abroad or those on State service abroad, but excluding those having permanent residence abroad in accordance with the legislation of the foreign State; (ii) foreigners and stateless persons holding a document entitling them to permanent residence in Kazakhstan; (iii) all juridical persons, established under Kazakhstan's legislation and located in Kazakhstan, as well as their branches and representative offices located in either Kazakhstan or abroad; and, (iv) diplomatic, trade and other official representative offices of Kazakhstan abroad.  Accordingly, "non-residents" were defined as all natural persons and juridical persons, their branches and representative offices, which were not defined as "residents".  She noted that licensing and registration requirements applied only to residents engaged in currency transactions (and not to non-residents). 

18.      Asked to provide information on the main sources of State revenue, as well as the main expenditures, the representative of Kazakhstan said that State budget receipts for 2011 had represented 19.9% of GDP.  Tax revenue had accounted for 74.1% of total budget revenue - with corporate income tax (19.5%), value-added tax (16%), individual income tax (7%), and social tax (5.5%) representing the main tax revenue sources.  Taxes levied on international trade and external transactions had accounted for 20.4% of overall tax revenue.

19.              The representative of Kazakhstan further noted that the Budget Code of the Republic of Kazakhstan No.95–V of 4 December 2008 (hereinafter: Budget Code) had laid down the legislative basis for the transition to a result-oriented State budgetary planning.  The Budget Code was aimed at redirecting the activity of government bodies from formal disbursement of the budget funds to reaching results in accordance with State policy priorities.  The following budgets were approved and implemented in Kazakhstan:  the republican budget, oblast budget, capital city budget, republican significance city budget, and regional budget (oblast significance city budget).  The budget inflows were from the following:  revenues, repayments of budget loans, inflows from the sale of State financial assets, and loans.  Budget revenues consisted of tax inflows, non-tax inflows, inflows from sales of main capital, and transfers inflows.  Tax inflows comprised taxes and other obligatory payments to the budget stipulated by the Tax and Customs Codes of Kazakhstan.  According to the Budget Code, obligatory payments included corporate income tax, excluding inflows from the oil industry sector; value-added tax (VAT) on locally produced goods, works and services, and imported goods; excise tax on imported goods; excise tax on crude oil, gas condensate; excise tax on locally produced goods; and other payments to the budget.  Non-tax inflows were obligatory irrevocable payments to the budget, which were not related to inflows from basic capital sales, fixed grants and money transferred to the budget on a voluntary basis, except transfers of (i) revenue from republican property - inflow from the net profit of republican State enterprises; inflow from the net profit of the NBRK; dividends from State-owned stakes; income from shares in State-owned entities; income from the lease of State-owned property; remuneration for external loan placements by the State on second tier accounts, as well as for government deposits in the NBRK; fees on credits issued from the republican budget; revenues from the sale of military equipment; and other revenues from republican property; (ii) inflows from sales of goods, services and works by State institutions, financed by the republican budget; (iii) inflows from government purchases, financed from the republican budget; (iv) penalties, fines and sanctions imposed by institutions, financed from the republican budget, except for inflows from the oil industry sector; and, (v) other non-tax inflows, except inflows from the oil industry sector.

20.              Asked to provide information on Kazakhstan's tax system, the representative of Kazakhstan said that the tax system was based on the principles of justice, transparency of the tax legislation, and unity of the tax system.  She added that the Code of the Republic of Kazakhstan No. 99-IV "On Taxes and Other Obligatory Payments to the Budget (Tax Code)" of 10 December 2008 (hereinafter: Tax Code), which had become effective on 1 January 2009, was aimed at (i) reducing the tax burden on economic sectors other than those related to the extraction of natural resources; (ii) reducing administrative barriers; and (iii) increasing the effectiveness of tax administration.

21.              The tax administration was made up of the State Revenue Committee of the Ministry of Finance and the tax service authorities.  The tax service authorities included the state revenue committees of oblasts and the cities of Astana and Almaty, and the state revenue committees of rayons, cities and districts of cities.  Tax authorities could also be established on the territories of special economic zones.  The tax service authorities were subject to a vertical authority, i.e., each tax service authority was directly subordinate to an authorized higher-level tax service authority and was not classified as a local executive government authority.  The Ministry of Finance administered the tax service authorities.  The customs authorities collected taxes paid by the transportation of goods across the customs border of the Eurasian Economic Union (hereafter: EAEU), in accordance with Kazakhstan's Tax Code, as well as the customs legislation of the EAEU and Kazakhstan.

22.              The Tax Code provided for a number of tax reductions.  The corporate income tax rate had been reduced from 30% to 20%.  Since 1 January 2009, VAT had been decreased from 13% to 12%.  As a result, Kazakhstan had one of the lowest VAT rates in the world.  The following persons were required to register for VAT payment in Kazakhstan:  (i) individual entrepreneurs; (ii) juridical persons of Kazakhstan, except for government institutions; and (iii) non‑residents conducting business in Kazakhstan through branches or representative offices.  In accordance with the Tax Code, the mandatory registration for VAT payment did not apply to:  (i) state institutions; (ii) structural divisions (branches, representative offices) of juridical persons of Kazakhstan; (iii) entities subject to gambling tax, fixed tax and single land tax; and, (iv) individual entrepreneurs, juridical persons of Kazakhstan and non-residents conducting business through branches or representative offices in Kazakhstan, with an annual turnover of less than 30,000 Monthly Calculation Index (MCI)[1]; i.e., small businesses.  In 2014, 30,000 MCI was equivalent to US$305,274 (1 MCI equaled KZT 1,852 in 2014 or approximately US$10.2).

23.              The representative of Kazakhstan stated that the National Fund of the Republic of Kazakhstan was established by Decree of the President No. 402 of 23 August 2000 with the objective to ensure stable socio-economic development of the State through reduction of dependence of the national economy on the oil sector and adverse impacts of external factors.  According to Article 21 of the Budget Code, the National Fund fulfilled both saving and stabilization functions.  The National Fund represented assets of the State in the form of financial assets, and other property, except intangible assets[2], accumulated on the Government's account at the NBRK.  According to Article 22 of the Budget Code, receipts into the National Fund consisted of the following:

-              direct taxes, collected from organizations of the oil sector (except taxes collected by local budgets); corporate income tax; excess profit tax; mineral extraction tax; export rent tax; bonuses; Kazakhstan's share received under production sharing agreements; and additional payment of subsurface users, operating activity under production sharing agreements; 

-              other receipts from operations, conducted by companies of the oil sector (except payments collected by local budgets), including payments received as a result of breaching the terms of oil contracts;

-              receipts from privatization of State property in republican ownership engaged in mining and processing sectors; and

-       receipts from selling land plots for agricultural purposes.

24.              She further clarified that according to Article 23 of the Budget Code, the National Fund of the Republic of Kazakhstan could be used:

(i)         in the form of the guaranteed transfer from the National Fund into the republican budget; and

(ii)        for covering of expenses related to the management by the National Fund and conducting annual audit.

Investment revenues from the management by the National Fund proceeded from investments of the financial assets of the National Fund into financial instruments, except for intangible assets. 

25.              Within the framework of social tax reforms, the Tax Code provided for the replacement of the existing regressive social tax scale - based on rates ranging from 13% to 5% - by a horizontal tax set at 11%.  The social tax was a contribution by employers, levied on the basis of the income of employees, and was aimed at covering for the social needs of the population. 

26.              The Tax Code provided the following preferences for companies operating in special economic zones:  a 100% reduction of corporate income tax; a 100% reduction for advance payments on corporate income tax; 0% rate for the land tax, as well as a zero coefficient applicable to related rates in the calculation of the land tax; and 0% rate on the average value of property subject to taxation in the calculation of property tax. 

27.              Prior to 1 January 2009, Kazakhstan had used two tax regime models for subsurface users:  (i) subsurface use contract; and, (ii) a production sharing agreement (PSA).  Since 1 January 2009, under the Tax Code, the practice of concluding PSAs with subsurface users had been discontinued.  This was due to the difficulties of controlling the correct calculation of reimbursable costs under the PSA.  At the same time, the tax regime defined in the PSAs, as approved by the President and signed before the enactment of the Tax Code (i.e., until 1 January 2009), had been preserved.

28.              In accordance with the Tax Code, subsurface users paid all taxes and compulsory charges to the budget, in accordance with that Code, including (i) special charges for subsurface users, including a signature bonus, commercial discovery bonus, and payment for compensation of past costs; (ii) a mineral extraction tax (MET); and (iii) excess profit tax.

29.              In order to improve the taxation regime for subsurface users, royalty payments had been replaced by a MET.  The main goal was an even distribution of the tax burden, since the royalty was calculated under the terms of each subsurface use contract.

30.              In accordance with Article 331 of the Tax Code, the MET was imposed on subsurface users carrying out the extraction of oil, minerals, ground water and mud, including the extraction of minerals from man-made mineral formations within each individual subsurface use contract. 

31.              A tax reduction approach was applied in the calculation of excess profit tax by increasing the volume of non-taxable net income from 20% to 25%.  In accordance with the provisions of the Tax Code, the tax base for this tax was the part of the subsurface user's net income in excess of 25% of the sum of the user's costs in the relevant tax period.  In addition, in calculating the excess profit tax, subsurface users had the right to deduct actual expenses for the acquisition of fixed assets and geological exploration. 

32.      The rent tax on exported crude oil and gas condensate was applied at rates ranging from 0% to 32%.  The value of factually exported crude oil and gas condensate was subject to taxation in accordance with world prices.

33.      A Member requested that Kazakhstan provide information on regional initiatives in the area of monetary and fiscal policy.  The representative of Kazakhstan replied that Section XIV "Monetary Policy" and Annex No. 15 "Protocol on Measures Aimed at Coordinated Monetary Policy" of the Eurasian Economic Union Treaty of 29 May 2014 (hereinafter: the EAEU Treaty), which came into effect on 1 January 2015, set up the legal framework in the EAEU in the area of monetary policies.  From 1 January 2015, as stipulated in Article 64 of Section XIV of the EAEU Treaty, for the purposes of deepening economic integration, development of cooperation in the monetary and financial sphere, ensuring free movement of goods, services and capital in the territories of the member States, enhancing the role of national currencies of the member States in foreign trade and investment transactions, as well as providing mutual convertibility of these currencies, the member States developed and carried out  coordinated monetary policy within the EAEU.  Further, Article 64 provided that the coordination of exchange rate policy was conducted by a body which consisted of the Heads of Central Banks of the member States.  The operational procedures of this body would be determined in the future by a separate international agreement within the EAEU.  She further clarified that a decision-making authority in the area of monetary and fiscal policy remained in the national competence of the member States. 

-       Foreign Exchange and Payments

34.              The representative of Kazakhstan said that currency transactions were regulated by the following normative legal acts:  Law No. 57-III "On Currency Regulation and Currency Control" of 13 June 2005, as amended on 6 January 2012 (hereinafter: Law No. 57-III), Resolution of the National Bank of the Republic of Kazakhstan (NBRK) Board No. 154 "On Approval of Rules for Conducting Currency Transactions in the Republic of Kazakhstan" of 28 April 2012 (hereinafter: Currency Rules No. 154), Resolution of the NBRK Board No. 106 "On Approval of Rules for Conducting Foreign Exchange Transactions in the Republic of Kazakhstan" of 27 October 2006, as amended on 30 November 2009 (hereinafter: Resolution No. 106), Resolution of the NBRK Board No. 63 "On Minimum Charter Capital of Juridical Persons Solely Involved in Foreign Exchange Transactions" of 16 July 2009, amended on 1 February 2010 (hereinafter: Resolution No. 63), Resolution of the NBRK Board No. 42 "On Approval of Rules on the Export‑Import Currency Control in the Republic of Kazakhstan and Receipt by Residents of the Record Number on the Export-Import Contracts" of 24 February 2012, as well as other normative legal acts of the NBRK.

35.              The purpose of currency regulation in Kazakhstan was to advance the national policy of achieving sustainable economic growth and maintaining economic security.  The currency regulation goals were to:  (i) establish procedures for the circulation of currency valuables in Kazakhstan; (ii) create conditions for Kazakhstan's further integration into the global economy; and, (iii) provide a database on currency transactions and capital flows.

-       Role of the National Bank of the Republic of Kazakhstan

36.              The representative of Kazakhstan said that the NBRK adopted normative legal acts to ensure the efficient and reliable transaction of the payment systems in Kazakhstan and was responsible for their oversight.  In accordance with Article 48 of Law No. 2155 "On the National Bank of Kazakhstan" of 30 March 1995, the NBRK had to arrange, coordinate and regulate payments and money transmissions.  The NBRK had to establish (i) "rules and peculiarities of application" of payment methods and/or money transmissions; and (ii) rules and conditions for payments related to the use of money in cash. 

37.              The NBRK activities in the sphere of currency regulation and currency control extended to, inter alia:  (i) determination of the order of currency valuables in circulation in Kazakhstan; (ii) establishment of rules for conducting currency transactions by residents and non-residents in Kazakhstan; (iii) establishment of unified rules and conditions for registration of foreign trade contracts for export and import, and of procedures for export-import currency control for fulfilling repatriation requirements by residents; (iv) establishment of the procedure for import, export and transmission of currency valuables in and out of Kazakhstan; (v) establishment of licensing procedures and the issuance of licenses for foreign exchange transactions; (vi) establishment of registration procedures and the issuance of registration certificates for foreign exchange offices; (vii) establishment of qualification requirements for conducting foreign exchange transactions; (viii) establishment of procedures for registration and notification of currency transactions and opening accounts in foreign banks by residents of Kazakhstan, as well as the issuance of registration and notification certificates; (ix) determination of the "rate deviation of foreign currency in purchase from the rate of foreign currency in sale for tenge" in transactions conducted through exchange offices; (x) issuance of special permits for currency transactions within the special currency regime; (xi) establishment of procedures and forms of reporting on currency transactions obligatory for both residents and non-residents (after consultation with the competent State bodies); and, (xii) application of sanctions stipulated in the banking and currency legislation of Kazakhstan in cases of violation by banks and other persons.

38.              The representative of Kazakhstan noted that Kazakhstan had accepted the obligations of Article VIII of the International Monetary Fund (IMF) Articles of Agreement and had established full convertibility of tenge in current transactions in 1996. 

39.              Since 4 February 2009, the exchange rate of the national currency had been pegged to the US dollar.  Taking into account the stability of the national currency, the favourable position of Kazakhstan's exports on world markets, and Kazakhstan's balance of payments, the NBRK had cancelled the exchange rate peg and, as of 28 February 2011, had moved to a managed float exchange rate regime.  A devaluation of the tenge in medium-term was not expected.  The NBRK continued to take all necessary measures to prevent considerable fluctuations of the national currency, which could have a negative impact on the competitiveness of Kazakhstan's industries.  The NBRK's policy was, to the extent possible, to further decrease its activity on the exchange market in order to increase the exchange rate flexibility of the national currency. 

-       Requirements Related to Foreign Exchange

40.              In response to a question concerning obligations and restrictions relating to the purchase of foreign currency, the representative of Kazakhstan said that, pursuant to Article 17 of Law No. 57-III, the purchase and sale (exchange) of foreign currency had to be carried out only through authorized banks, authorized organizations, or their exchange offices.  She explained that in accordance with Law No. 57-III, "authorized banks" were second-tier banks and organizations engaged in certain types of banking operations and conducting foreign currency transactions, including transactions on behalf of clients.  The definition of "authorized banks" excluded "authorized organizations", which were allowed to conduct only currency exchange transactions.  She continued that according to Article 15 of Currency Rules No. 154, residents and non‑residents had the right to purchase foreign currency in the domestic currency market without providing a currency contract and/or other payment documents related to the foreign currency purchase and sale transactions.  In filling out the application for the purchase of foreign currency through an authorized bank, juridical persons (resident and non-resident) were required to indicate the purpose of purchasing the foreign currency.  However, in accordance with Article 18 of Currency Rules No. 154, the foreign currency purchased by juridical persons could be used for purposes other than indicated in the application. 

41.              The representative of Kazakhstan noted that, in accordance with Article 26 of Law No. 57-III, non-residents had the right to open bank accounts in a foreign and/or national currency in authorized banks on an unrestricted basis.  Non-residents also had the right to transfer foreign and national currency, on an unrestricted basis: (i) from their accounts outside of Kazakhstan to their bank accounts in an authorized bank; and (ii) from their bank accounts in an authorized bank to their bank accounts outside of Kazakhstan. 

42.              The representative of Kazakhstan noted that, in accordance with Currency Rules No. 154, natural persons had the right to withdraw (credit an account) foreign currency in cash from their bank accounts in an authorized bank without limitations.  Juridical persons could withdraw foreign currency in cash from bank accounts in authorized banks for payments to natural persons in the following cases:  (i) payments for the sale of goods in duty free shops, as well as realization of goods and rendering of services to passengers en route during international transportation; (ii) payments between natural persons and authorized banks or authorized organizations through their exchange offices; (iii) payments of salary by resident juridical persons to non-resident employees, as well as by non‑resident juridical persons to resident and non-resident employees in foreign currency; (iv) payments in foreign currency by juridical persons of expenses related to business trips of their employees abroad; and, (v) payments between natural persons and non‑resident juridical persons conducting activity under customs control in airports, ports and border terminals open for international traffic.  In her view, the requirement to indicate the purpose for the purchase and sale of foreign currency was only imposed for statistical purposes and did not restrict the juridical persons' use of the purchased currency for other legal purposes.  In her opinion, the current legal framework did not restrict legitimate trade transactions. 

43.              The representative of Kazakhstan noted that payments and money transmissions under current transactions between residents and non-residents could be carried out without restrictions, provided that they were conducted through accounts in authorized banks.  In addition, paragraph 1 of Article 16 of Law No. 57-III stipulated cases where payments and transmissions on currency transactions could be carried out, by non-cash payment, without opening bank accounts in authorized banks in Kazakhstan:  (i) payments and transmission of natural persons' money, as well as payments and transmission of money in their favor, in national currency, within the territory of Kazakhstan; (ii) transfer of natural persons' money without opening a bank account in an authorized bank in cases of non-repayable transmission of money (including tax and licence payments, fines, transfer of inheritance, alimony, grants, etc.) and other money transmissions from Kazakhstan, which were not related to conducting business activity by natural persons, and in relation to which there was no requirement to assign a record number to the foreign trade contract, registration and notification; (iii) payments for the sale of goods in duty free shops as well as the sale of goods and rendering services to passengers en route during international transportation; (iv) payments between natural persons and authorized banks or authorized organizations through their exchange offices; (v) payments of salary by resident juridical persons to non-resident employees, as well as by non-resident juridical persons to resident and non‑resident employees in foreign currency; (vi) payments in foreign currency by juridical persons of expenses related to sending employees on business trips outside of Kazakhstan; (vii) payments between natural persons and non-resident juridical persons conducting activity under customs control in airports, ports and border terminals open for international traffic; and, (viii) payments between resident juridical persons and non-resident juridical persons conducting business activity on the territory of Kazakhstan, in the national currency within the amounts specified by the legislation of the Republic of Kazakhstan.  The following payments and transmissions of money could be carried out without opening bank accounts in authorized banks of Kazakhstan:  payments by checks; payments and transmission of money for transactions with non-residents through foreign bank accounts opened by residents, as well as payments and transmission of money through the authorized bank's correspondent accounts in foreign banks; and transfer of money from the foreign bank accounts of non-residents against fulfillment of the resident's obligations.

-       Restrictions on Foreign Exchange

44.              Restrictions on currency transactions as a mechanism of reaction to external shocks could be imposed in Kazakhstan only as provided by Article 32 of Law No. 57-III, according to which restrictions on currency transactions could be imposed only in case of threat to the country's economic security and the stability of its financial system, and only if the situation could not be resolved through other economic policy tools.  Restrictions on currency transactions could be imposed within the framework of a special currency regime applied by an Act of the President.  However, the special currency regime had never been imposed.

45.              Asked to explain the procedures and criteria applied when the President decided to restrict currency transactions, the representative of Kazakhstan said that these were stipulated in Article 32 of Law No. 57-III and included a requirement to:  (i) open a bank deposit without remuneration, in an amount determined as percentage of the amount of the currency transaction, in an authorized bank or the NBRK, for a fixed period of time; (ii) obtain a special currency transaction permit from the NBRK;  (iii) fulfil obligatory sale of foreign currency obtained by residents of Kazakhstan; or, (iv) restrict the use of foreign bank accounts and establish terms for the repatriation of currency proceeds and limits on the scope, amount and transaction currency during currency transactions.  The representative of Kazakhstan clarified that not all measures would be applied at once, but that the measures would be applied selectively, depending on the situation and the nature of the risks of destabilization in the currency market.  The President could also impose other temporary currency restrictions.  The special currency regime measures were aimed at fulfilling Kazakhstan's international obligations and creating conditions for the improvement of Kazakhstan's balance of payments and the situation on the domestic market.

46.              The representative of Kazakhstan further explained that the special currency regime was applied by the President based on consultations with the Government and the NBRK.  The President's Act on a Special Currency Regime had to contain:  (i) the list of measures and temporary restrictions of currency transactions; (ii) procedure to carry out the requirements of the special currency regime, including terms for issuing the special permit; and, (iii) date of introduction and validity period of the special currency regime.  A special currency regime could not be established for more than one year.  During the year the special currency regime was in effect, the President was entitled to extend the term of the special currency regime (in case it was imposed for a term of less than one year) or to fully or partially abrogate it.  During the application of the special currency regime, residents and non-residents had to observe the requirements established by the Special Currency Regime Act of the President.

47.              Specific criteria and procedures for application of this regime were not established as it was difficult to forecast what could cause a threat to the economic security and financial stability of the State.  In her opinion, this system complied with the provisions of the WTO Agreement and did not conflict with Kazakhstan's obligations in respect of the IMF.  In response to a question from a Member, she noted that the regime of obligatory sale of foreign currency had been temporarily imposed from April to December 1999 during the transition to the new exchange rate regime.  Since then, there had been no reasons to apply such restrictions. 

48.              EAEU member States previously had signed the Agreement on the Procedure for the Movement of Cash Monetary Funds and/or Monetary Instruments by Natural Persons across the Customs Border of the Customs Union of 5 July 2010.  Kazakhstan had ratified this Agreement through Law No. 389-IV "On Ratification of the Agreement on the Procedure for the Movement of Cash Monetary Funds and/or Monetary Instruments by Natural Persons across the Customs Border of the Customs Union" of 17 January 2011.  Under this Agreement, imports from third States to Kazakhstan and exports from Kazakhstan to third States of (i) cash and traveler's checks in a total amount exceeding the equivalent of US$10,000; and, (ii) cash instruments payable on demand irrespective of the amount were both subject to customs declaration in written form.  This Agreement was still in force within the framework of the EAEU. 

-       Licensing, Registration and Notification of Foreign Exchange Transactions

49.              Some Members expressed concerns regarding the large quantity of licensing requirements for foreign exchange transactions under the current legislation, some of which could complicate normal trade transactions, and asked for specific information on Kazakhstan's plans to liberalize its foreign exchange regime. 

50.              The representative of Kazakhstan replied that, in accordance with Law No. 57-III, since 11 August 2009 the licensing regime (authorization procedure) of currency transactions and retail trade had been fully cancelled.  At present, licensing requirements were applied only to exchange transactions with foreign currency in cash by exchange offices and authorized banks.  Kazakhstan provided annual reports on its currency regime to the IMF.  The IMF had never deemed Kazakhstan's regime inconsistent with the IMF Articles of Agreement and, in particular, with Article VIII of the Agreement.  The registration and notification requirements, as described in the following two paragraphs, were maintained for statistical monitoring of external liabilities/revenues of Kazakhstan and for further submission of the relevant data to the International Monetary Fund and the World Bank. 

51.              Asked to clarify what changes had been introduced into Law No. 57-III with respect to the licensing regime of currency transactions and retail trade, the representative of Kazakhstan said that during the period of gradual liberalization of the currency transactions and retail trade licensing regime from 2005 to 2009, the licensing requirement had been eliminated towards the following currency operations and activities:

-           retail trade and provision of services for which payment was performed in cash foreign currency.  Under the previous regime, the licence had been issued to persons who carried out their activities under the customs regime of duty free shops, as well as on the sea, inland water, air, rail and road transport engaged in international transportation;

-       payments based on exports / imports exceeding the 180-day term;

-           purchase by residents of non-resident's securities, equity interests in investment funds – non-residents, contributions by residents into the share capital of non-residents, as well as transactions with financial derivatives between residents and non-residents; and

-           opening accounts in foreign banks by natural persons-residents and juridical persons‑residents.  Under the previous regime, the account balance and the conditions of use of a foreign bank account had been determined in accordance with a licence of the NBRK. 

52.              The representative of Kazakhstan noted that only residents were required to register major transactions of capital flows and provide timely notice to the NBRK.  Residents were required to register transactions related to capital flow, which provided for the receipt of assets (funds) in an amount exceeding US$500,000 or for the transfer of capital (tangible assets) from Kazakhstan in an amount exceeding US$100,000.  She added that, in accordance with Law No. 57-III, the following transactions of residents with non-residents were subject to registration with the NBRK:  (i) commercial credits exceeding 180 days, except for foreign trade contracts which were subject to export-import currency control as described in paragraph 485 of this Report; (ii) direct investments; (iii) financial loans for more than 180 days, including financial leasing; (iv) acquisition of an exclusive right to intellectual property objects; and, (v) transfer of money or another property in fulfilment of obligations as a participant of a joint partnership.  The NBRK registration or notification requirements extended only to residents.  Non-residents investing directly in Kazakhstan could further export their investments and incomes without any restrictions. Registration of contract on currency transaction could only be refused in cases when: (i) the submission contained unreliable information or did not include all information required in accordance with Law No. 57-III; and, (ii) the transaction did not comply with the legislation of the Republic of Kazakhstan.  The provisions of Article 8 of Law No. 57-III outlined the only conditions under which the registration of transactions could be refused.  If a resident submitted the complete set of required documents in compliance with the legislation of Kazakhstan, the authorized bank would not have grounds for refusing the registration.  Registered transactions could not be abrogated or nullified by the NBRK.

53.              The representative of Kazakhstan added that the registration regime required the resident to submit to the NBRK a copy of the contract based on which the currency transaction would be carried out, as well as application form, identification documents and documents confirming incurrence, performance and discharge of liabilities under the currency contract.  The notification regime required the submission of information on already conducted currency transactions.  As part of the liberalization reform of the currency transaction regime, the registration requirement for certain currency transactions had been replaced by the notification requirement.  Residents were required to notify currency transactions related to:  (i) capital movements involving the inflow of property (funds) in an amount exceeding the equivalent of US$500,000; (ii) transfer of funds (tangible assets) from Kazakhstan in an amount exceeding the equivalent of US$100,000; and, (iii) payments/transfers by residents to non-residents and/or by non-residents to residents under financial derivatives transactions, as well as for payments related to export/import of works and services in amounts exceeding the equivalent of US$100,000.  The notification regime covered:  (i) the bank's own transactions, including financial loans and direct investments; (ii) securities transactions carried out on the basis of a brokerage services agreement concluded with a resident broker (notification by a broker); (iii) transactions with derivative financial instruments; (iv) acquisition of real estate; (v) opening of foreign bank accounts by residents; and, (vi) transfer of property in trust (monetary funds and tangible assets). 

54.              The representative of Kazakhstan noted that, in accordance with paragraph 30 of Currency Rules No. 154, the currency control regime did not extend to:  (i) contracts on State external loans and/or contracts on non-State external loans guaranteed by the Government, as well as transactions carried out under these contracts; (ii) commercial credits related to export or import requiring the assignment of a record number to the foreign trade contract; (iii) acquisition by non‑residents of the securities of resident issuers, which were issued under the legislation and on the territory of other states (including depositary receipts issued for resident issuers' securities) in the secondary market; (iv) acquisition by residents of the securities of non-resident issuers, issued under Kazakhstani legislation (including Kazakhstani depositary receipts) in the secondary market; (v) acquisition by non-residents of government securities issued in Kazakhstan; (vi) banking transactions with derivative financial instruments; (vii) currency transactions carried out by overseas organizations of the Republic of Kazakhstan; and, (viii) commercial credits and financial loans granted by banks to non-residents for more than 180 days.  She emphasized that registration and notification were required for statistical monitoring purposes.   

-       Exchange Offices

55.              Some Members asked the representative of Kazakhstan how enterprises obtained rights to conduct currency transactions, whether foreign organizations were able to become licensed banks or exchange offices, and whether the licenses could be issued to any other organizations except for banks.  She explained that foreign currency transactions, including those on behalf of clients, were carried out by second tier banks and other financial organizations established in Kazakhstan on the basis of a licence issued by the NBRK.  She further continued that the Agency for Regulation and Supervision of Financial Markets and Institutions of the Republic of Kazakhstan had been abolished pursuant to Decree of the President No. 25 "On Further Improvement of the System of State Regulation of the Financial Market of the Republic of Kazakhstan" of 12 April 2011.  The functions and authority of the Agency had been transferred to the NBRK.

56.              The representative of Kazakhstan further explained that the NBRK issued licences for conducting exchange transactions with foreign currency in cash only to juridical persons of the Republic of Kazakhstan, who were solely engaged in the organization of exchange transactions (exchange offices).  In accordance with paragraph 4 of Article 6 of Law No. 57-III, to obtain a licence, the applicant had to meet only one qualification requirement: to have start-up capital as specified by Resolution No. 63. 

57.              The representative of Kazakhstan noted that such juridical persons could be established only as limited liability partnerships without the right to establish representative offices in Kazakhstan or abroad, or to participate in the charter capital of other juridical persons, but with the right to establish branches in Kazakhstan.  According to Article 7, Chapter 2 of Resolution No. 106, resident and non‑resident natural and juridical persons could be the founders of an authorized organization, except for juridical persons which previously had been founders (one of the founders) of an authorized organization whose licence had been revoked less than three years before the date of application for a State registration permit or for a licence for organizing exchange transactions with foreign currency.  A general licence for conducting exchange transactions did not restrict the number of exchange offices of the applicant. 

58.              Branches and representative offices of foreign banks could not carry out foreign currency exchange transactions until they registered as juridical persons of Kazakhstan and obtained the relevant permit. 

59.              The representative of Kazakhstan confirmed that if Kazakhstan introduced restrictions on foreign exchange or payments, such restrictions would be applied in conformity with WTO requirements.  The Working Party took note of this commitment.

60.              A Member requested that Kazakhstan provide information on regional initiatives in the area of foreign exchange and payments policy.  The representative of Kazakhstan replied that according to Section XIV "Monetary Policy" and Annex No. 15 "Protocol on Measures Aimed at Coordinated Monetary Policy" of the EAEU Treaty, which came into effect on 1 January 2015, the member States developed and carried out coordinated monetary policy within the EAEU.  Article 64 of Section XIV stipulated that the coordination of exchange rate policy was conducted by a body, which consisted of the Heads of Central Banks of the member States.  The Advisory Council on Monetary (Currency) Policy (hereinafter: the Advisory Council) had been established within the framework of the Single Economic Space in accordance with the Treaty "On Coordinated Monetary (Currency) Policy of Member States of the Agreement on Coordinated Principles of Monetary (Currency) Policy of 9 December 2010", which had been signed on 12 December 2011 and had entered into force on 1 January 2012.  The Advisory Council would continue to function as a consultative body within the EAEU with the objective to provide coordination of monetary (currency) policy of the member States.  The decisions of the Advisory Council were made based on consensus and were not binding.  It operated on a regular basis with meetings held once per quarter.  The representative of Kazakhstan further clarified that a decision-making authority in the area of monetary and fiscal policy remained in the national competence of the member States.

-       Investment Regime

61.              The representative of Kazakhstan said that the general legislation comprising the investment regime of Kazakhstan included the Constitution of Kazakhstan of 30 August 1995; Civil Code of Kazakhstan  (General Part) No. 269-XII of 27 December 1994, as last amended on 25 March 2011 (hereinafter: Civil Code) and Special Part No. 409 of 1 July 1999, as last amended on 2 April 2010; Code of the Republic of Kazakhstan No. 99-IV "On Taxes and Other Obligatory Payments to the Budget (Tax Code)" of 10 December 2008 (hereinafter: Tax Code) and a number of other legislative acts, including:  Law No. 373-II "On Investments" of 8 January 2003, as last amended on 20 February 2012 (hereinafter: Law "On Investments"); Law No. 112-IV  "On Competition" of 25 December 2008; Law No. 233-I "On National Security of the Republic of Kazakhstan" of 26 June 1998; Law No. 291-IV "On Subsurface and Subsurface Use" of 24 June 2010 (hereinafter: Law "On Subsurface and Subsurface Use"); Law No. 167-III "On Concessions" of 7 July 2006; and Law No. 124-III "On Private Entrepreneurship" of 31 January 2006.  Provisions relevant to the investment regime contained in EAEU Agreements and Treaties, to which Kazakhstan was a party, also applied (see Section "Tariff Exemptions" of this Report).

62.      The representative of Kazakhstan added that Law "On Investments" provided the specific elements of the legal basis for Kazakhstan's investment policy.  This Law regulated relations with regard to investments in Kazakhstan, determined the legal and economic basis for the attraction of investments, guaranteed the protection of investors' rights when investing into Kazakhstan, and established measures of State support for investments and procedures for dispute resolution.  Law "On Investments" did not establish local content or export performance requirements as measures of State support for investments.  In response to a question, the representative of Kazakhstan replied that Law "On Investments" did not contain provisions specifying contractual rights, but rather described procedures for conclusion and termination of investment contracts.

63.      Asked to clarify the definition of investments, and whether or not it included all goods, the representative of Kazakhstan said that Law "On Investments" defined investments as all kinds of property (except for goods for personal use), including property under financial leasing as of the date of the contract; property rights invested by an investor into the charter capital of a juridical person; and the increase of fixed assets used in entrepreneurial activities, as well as fixed assets produced and received within a concession agreement by the concessionaire (including its legal successor). 

64.      She further stated that, in accordance with paragraph 1 of Article 4 of Law "On Investments", an investor was granted full and unconditional protection of the rights and interests, ensured by the Constitution of the Republic of Kazakhstan, this Law and other legal acts of the Republic of Kazakhstan, as well as international agreements ratified by the Republic of Kazakhstan.  This legal protection of investments included full and unconditional protection of the rights of investors, and guarantee of indemnity for damages suffered by investors due to issuance by public officials of acts that did not comply with the legislation of the Republic of KazakhstanPursuant to paragraph 1 of Article 922 of the Civil Code, such damages had to be compensated by court decision using funds from the State Budget.  

65.      A Member requested to clarify whether in accordance with Law "On Investments" the stability of the terms and conditions of contracts concluded between investors and state bodies was guaranteed, and whether any modification made into the list of priority activities or consequences of the list becoming void affected concluded investment contracts.  The representative of Kazakhstan replied that legal certainty for investors was guaranteed by Law "On Investments".  In accordance with paragraph 3 of Article 4 of the Law, the Republic of Kazakhstan guaranteed stability of the terms and conditions of agreements concluded between investors and State bodies, except for agreements that were amended by mutual consent of the parties.  These guarantees for investors did not extend to: (i) amendments to the legal acts of the Republic of Kazakhstan and/or their entry into force, nor to amendments made to international agreements that changed the terms and conditions of import, production, and sale of excisable goods; and (ii) amendments and addenda to Kazakhstan's legislation introduced for national security, environmental safety, public health and morality purposes.  In these exceptional cases, stipulated in Article 4 of the Law, the signed contracts could be modified, i.e., the State could enact new legislation or amend applied legislation.  It was important to note that up to date Kazakhstan had not applied above-mentioned exceptional cases and, consequently, had not modified the terms of signed investment contracts.  The legal certainty guaranteed to investors by the legislation of Kazakhstan also meant that any modification made into the list of investment priority activities or consequences of the list becoming void, did not affect concluded investment contracts. 

66.      Law "On Investments" also guaranteed the transparency of the activities of State bodies and the access to information related to investment activities (company registration, charter documents, licensing, etc.); provided a guarantee for investors to use income at their full discretion; guaranteed protection of investors' rights in case of nationalization and requisition; and investment dispute settlement regulations, including the possibility of international arbitration provided by this Law.  Agreements on promotion and mutual protection of investments were concluded with certain countries in order to guarantee investment protection.  These Agreements provided guarantees of investors' rights, including the recovery of investments when faced with political (regulatory) risks, nationalization and expropriation; the prevention of discrimination; and the regulation of disputes including appeal to international arbitration courts.

67.      In response to a request by a Member for more information on nationalization, the representative of Kazakhstan said that nationalization procedures were stipulated in the Civil Code and Law "On State Property".  In accordance with Article 54 of Law "On State Property", nationalization was carried out in the public interest, for national security purposes, in compliance with the established legal procedures and performed without discrimination.  Nationalization was subject to preliminary and equivalent compensation by the Republic of Kazakhstan of the market value of the nationalized property and other losses.  Reimbursement of the value of the property subject to nationalization and other relevant losses was carried out in full, prior to transfer of ownership rights to the Republic of Kazakhstan.

68.      Asked to clarify if legislation on evaluation activities was developed and what effect it had on reimbursements, the representative of Kazakhstan said that evaluation of property purchased or alienated by the State in case of nationalization or requisition, was performed by a valuator in accordance with Law No. 109-II "On Evaluation Activity in the Republic of Kazakhstan" of 30 November 2000.  The market value of the property subject to nationalization or requisition was established without regard to the change of value as a result of announcement of the forthcoming nationalization or requisition.  Upon the request of the owner of the property subject to nationalization, a re-valuation of the value of the property could be conducted on the date of reimbursement.   

-       Investment preferences

69.      The representative of Kazakhstan further explained that Law "On Investments" provided that the State's investment support was directed towards the creation of favourable conditions for investors investing in new technologies, the expansion and renovation of existing production facilities, training and protection of the environment.  The State support of investments involved granting of investment preferences for a list of "priority" investment activities, which were available to all juridical persons of Kazakhstan provided they met the objective criteria.  As Law "On Investments" did not set minimum capital requirements for foreign investment, its scope of application, including investment preferences, also covered small and medium-sized enterprises.  Investment incentives were granted to the investment activity in the list of priority activities (approved by Government Resolution No. 436 of 8 May 2003 and amended by Government Resolution No. 809 of 6 August 2010) or the list of strategic investment projects.  She further explained that the list of strategic investment projects previously adopted by Government Resolution No. 1293 of 1 September 2009 had become void and that a new list of strategic investment projects would be developed by her Government. 

70.      Previously, investment tax preferences had been in the form of full exemptions from the payment of property tax, land tax and corporate income tax and had been enforced from the date the investor started to operate the facility.  However, as of 1 January 2009, these investment tax preferences had been eliminated from Law "On Investments".  Therefore, they had no longer been granted since 1 January 2009.  In the meantime, a transitional arrangement had been introduced for investment contracts concluded before 1 January 2009.  Thus, according to Article 23 of Law "On Investments", tax preferences granted under an investment contract concluded with the authorized body on investments before 1 January 2009 would be effective until the expiration of the term specified in the contract.  There were approximately 100 investment contracts granting tax preferences concluded prior to 1 January 2009, 58 of which were still being in the process of implementation.  None of the investment contracts that had been concluded prior to 1 January 2009 contained local content requirement.

71.      The fundamental criterion for granting all types of investment preferences was that an investment activity should be listed in the list of priority activities.  The following types of investment preferences could be granted within the investment contract:

-       customs duty exemptions;

-       in-kind state grants;

-           preferences on land tax and property tax for juridical persons implementing strategic investment projects; and,

-           industrial preferences for juridical persons implementing strategic investment projects in socially and economically disadvantaged regions.

72.      Customs duty exemptions and in-kind state grants were granted, provided that the investment activity was listed in the list of priority activities approved by Government Resolution No. 436 of 8 May 2003.  Customs duty exemptions were granted for a period not exceeding five years from the date of conclusion of the investment contract.  In-kind state grants were granted for the implementation period of an investment project from the date of conclusion of the investment contract.  For land tax preferences, property tax preferences and industrial preferences for implementing strategic projects, an additional criterion was established, i.e., an investment project had to be included into the list of strategic investment projects.  If the project was not listed in the list of strategic investments projects, a juridical person could not apply for such preferences. 

73.      On 20 February 2012, the concept of strategic investment projects, i.e., projects that had strategic impact upon the economic development of Kazakhstan, had been re‑introduced into Law "On Investments".  Juridical persons implementing strategic investment projects could benefit from the new preferences on land and property tax and industrial preferences.  The procedures for granting preferences on land tax and property tax were stipulated in the Tax Code.  Preferences on land tax and property tax could be granted for a period not exceeding seven years from the date of conclusion of the investment contract.  Industrial preferences were granted to juridical persons implementing investment strategic projects in socially and economically disadvantaged regions in the form of compensation or payments for such expenditures as gas, electricity, purchase of land, buildings and facilities.  The list of the regions that were socially and economically disadvantaged was approved by Government Resolution No. 601 of 10 May 2012.  The procedure for granting industrial preferences was approved by Government Resolution No. 61 of 30 January 2013.  Industrial preferences could be granted for a period not exceeding seven years from the date of launching the investment strategic project.  To date, there had been no industrial preferences, land and property tax preferences granted.

74.      The lists of priority activities and strategic investment projects were intended to be revised regularly.  The list of priority activities approved by Government Resolution No. 436 of 8 May 2003 had been amended in 2009 by Government Resolution No. 925, and again in 2010 by Government Resolution No. 809.  Changes had been made with regard to types of activities, but the number of activities (93) had not been changed.  The list of priority activities was amended by Government Resolution No. 1416 of 8 November 2012.  The updated list of priority activities is attached to this Working Party Report (Annex 2). 

75.      According to Article 19 of Law "On Investments", an applicant for investment preferences was required to submit documents to the authorized body in charge of investments determined by the Government to prove the juridical person's financial, technical and organizational capability to implement the investment project or the strategic investment project. The authorized body was responsible for concluding contracts on granting investment preferences based on the submitted information and for monitoring their implementation.  It also took decisions on granting investment preferences and the possible extensions of their terms.  Currently, the Investments Committee under the Ministry of Investments and Development was the authorized body in charge of investments. 

76.      In order to bring into compliance with Decision of the CU Commission No. 130 "On Common Customs Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009, Law "On Investments" had been amended on 20 February 2012.  In accordance with those amendments, customs duty exemptions were granted for technological equipment, its components and spare parts, raw materials and inputs imported for implementation of an investment project or a strategic investment project within the investment contracts concluded with the authorized body.  In-kind grants could be granted by the Government to investors in the form of land plots, buildings, machinery, equipment, computer machines, measuring and regulating units, transportation vehicles (except for automobiles), production and household equipment.  The authorized body, based on domestic legislation and with the approval of the relevant State bodies, also could confer in-kind State grants for either ownership or temporary use. 

77.      She further explained that procedures and conditions for simpler and broader application of investment tax preferences were established by the Tax Code.  The Tax Code provided tax preferences in the form of deductions on corporate income tax.  Application of the tax preferences did not require the juridical person to conclude an investment contract with the competent authority on investments in order to benefit from them. In accordance with the Tax Code, application of these investment tax preferences was not conditioned to local content requirements. These tax preferences provided for the possibility of judicial persons to deduct from the taxable income the value of buildings and facilities, machinery and equipment used in production, as well as related costs for reconstruction and modernization.  The duration of tax preferences depended on the method of deduction applied by the juridical person.  Deductions could be carried out according to one of two methods:  (i) deduction after putting a facility into operation; or (ii) deduction prior to putting a facility into operation.  According to the method of deduction after putting a facility into operation, the original costs (to be paid for the purchase, construction, assembling and installation of buildings, facilities, machinery and equipment) could be deducted in equal amounts during the first three-year tax period, or on a lump-sum basis.  According to the second method, i.e., deduction prior to putting a facility into operation, the costs (to be paid for the purchase, construction, assembling and installation as well as reconstruction and modernization of buildings, facilities, machinery and equipment before putting them into operation) could be deducted in the tax period during which actual costs were incurred.  These tax preferences were applicable to industrial buildings and constructions, machinery and equipment which were put into operation for the first time and were used for at least three years.

78.      Investment preferences in the automobile sector had been granted under the free warehouse regime, which included local content requirements.  In addition, preferences conditioned upon the use of local materials are described in Section "Free Zones, Special Economic Areas" of this Report.  The customs duty exemptions granted under Law "On Investments" described above were distinct structurally and legally from the exemptions resulting from local content requirements in the free warehouse regime and the local content requirements in Kazakhstan's automotive investment programme described in Section "Trade Related Investment Measures" of this Report. 

79.      The representative of Kazakhstan added that according to Article 3 of Law "On Investments", foreign investment activities could be limited or banned in certain areas due to national security considerations.  Pursuant to Article 5 of Law No. 451-I "On the Mass Media" of 23 July 1999, foreign natural and juridical persons were not allowed to directly or indirectly own, use, or manage more than 20% of the capital of a mass media enterprise in Kazakhstan.  Pursuant to Article 5 of Law No. 85-II "On Guarding Activities" of 19 October 2000, foreign juridical persons, domestic juridical persons with foreign participation, as well as foreign and stateless individuals, could not engage in security and safety (guarding) activities.  She added that, pursuant to Law No. 233-I "On National Security of the Republic of Kazakhstan" of 26 June 1998, in the field of telecommunications, total foreign equity was limited to 49% of the charter capital of juridical persons supplying services as operators of long distance and/or international communications owning terrestrial communication lines (cable, including optical fibre, and radio relay).

80.      According to Law No. 339-IV "On Use of Air Space and Activities of Aviation" of 15 July 2010, foreign participation in the authorized capital of air companies, performing regular air transportation was limited to 49%.  She also noted that, pursuant to Article 36 of Law No. 136-I "On Pensions in the Republic of Kazakhstan" of 20 June 1997, the total charter (registered) capital of pension funds with foreign capital participation could not exceed 25% of the aggregate charter capital of all pension funds in Kazakhstan.  For investment management companies managing pension assets, this figure was set at 50%.  In addition, at least one third of the Board of Directors of such pension funds or investment management companies had to be made up of Kazakhstani nationals.  However, she noted that the provisions of Law No. 107-III "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Licensing and Consolidated Supervision" of 23 December 2005 and Law No. 128-III "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Insurance" of 20 February 2006 had eliminated similar restrictions on foreign participation affecting banks and insurance/reinsurance companies.  She added that Law No. 204-III "On Amendments to Law of the Republic of Kazakhstan 'On Architectural, Town‑building and Construction Activity in the Republic of Kazakhstan'" of 11 December 2006 had eliminated the 49% foreign equity cap in architectural, urban development and construction services joint ventures.  

81.      She noted that pursuant to Article 23 of Land Code No. 442-II of 20 June 2003, private ownership of land plots located in the border zone and boundary territories of the Republic of Kazakhstan by foreigners and foreign juridical persons was prohibited.  Also foreign citizens and foreign juridical persons could not privately own lands used for farming/agricultural production or forest planning purposes.  Foreigners might be granted the right of temporary land use for farming/agricultural production purposes for a period of up to 10 years.  Lease-holding of land plots for agricultural purposes adjacent to the State border of Kazakhstan was also restricted for foreigners. 

82.      A Member sought clarification on the definitions of border zone and borderland.  The representative of Kazakhstan explained that in accordance with paragraph 29 of Article 2 of Law No. 70-V "On the State Border of the Republic of Kazakhstan" of 16 January 2013, the borderland was a part of the territory directly adjacent to the State border on the land plot.  In the areas where the State border passes through border rivers, lakes and other waters, the borderland was defined as a part of the territory directly adjacent to the coast of these waters as well as territories located in the islands where the State Border regime was established.  In accordance with paragraph 28 of Article 2 of Law "On the State Border of the Republic of Kazakhstan", a border zone was a part of the territory of the Republic of Kazakhstan adjacent to the borderland within the territory of administrative districts.

83.      In response to the question of a Member concerning the minimum distance from the border that was prohibited for lease or purchase by foreigners, the representative of Kazakhstan replied that according to Government Resolution of the Republic of Kazakhstan No. 365 "On Establishment of the Limits of Borderland, Quarantine Zone and Border Zone" of 16 April 2014, such distance was established within the territory of 27 km and/or within administrative territories (districts) adjacent to the State Border of the Republic of Kazakhstan, to the Kazakhstan's banks of the border rivers, lakes and other basins; and on the coast of the Caspian Sea - 25 km adjacent to the shoreline of the Caspian Sea.

84.      In response to questions on the existence of any restrictions or conditions, which did not apply to domestic juridical persons, but were applicable to foreign-owned juridical persons of Kazakhstan investing in land or leasing subsurface rights, the representative of Kazakhstan said that all restrictions applied equally to domestically-owned and foreign-owned juridical persons of Kazakhstan.  She added that Article 12 of Law "On Subsurface and Subsurface Use" had been amended in line with the provisions of Law No. 233-I "On National Security of the Republic of Kazakhstan" of 26 June 1998, which stipulated that economic security extended to the preservation and increase of the energy resources of Kazakhstan.  According to these amendments, the Government of Kazakhstan had the priority in purchasing the rights to subsurface utilization, when sold by their current holder. 

85.      A Member asked the representative of Kazakhstan to clarify whether any financial actions affecting a change in ownership of an enterprise which owned the rights to subsurface utilization, such as the sale of private equity in the enterprise, would also trigger the application of Law "On Subsurface and Subsurface Use".  The representative of Kazakhstan replied that in accordance with Law "On Subsurface and Subsurface Use", if subsurface user intended to alienate the subsurface use right (a part thereof) and/or an object related to subsurface use rights[3], the State had a priority right to purchase the subsurface use right (a part thereof) and/or an object related to subsurface use rights.  Subsurface user that intended to alienate the subsurface use right (a part thereof) and/or an object related to subsurface use rights had to submit application to the competent authority.  The decision on acquisition of alienable subsurface use right (a part thereof) and/or an object related to subsurface use right was taken by the competent authority on behalf of the Government of Kazakhstan.  Therefore, any financial actions resulting in change of ownership of an enterprise which owned the rights to subsurface utilization, such as the sale of private equity in the enterprise, would bring into effect the provision of Law "On Subsurface and Subsurface Use", giving the Government of Kazakhstan the priority right to subsurface utilization, when sold by the current holder.

86.      A Member expressed concerns regarding the effect that the amendments to Law "On Subsurface and Subsurface Use" could have on the investment climate in Kazakhstan.  In response, the representative of Kazakhstan said that Law "On Subsurface and Subsurface Use" would not negatively affect the investment climate in Kazakhstan, as it did not discriminate between foreign and domestic investors.  The Law provided only for transparency and compliance with the terms of subsurface use contracts by subsurface users in order to ensure stable economic growth.  As of November 2011, 142 companies operated in the subsurface sector, among which 86 companies had foreign participation. 

87.      In response to questions from some Members, the representative of Kazakhstan stated that Kazakhstan would provide foreign invested juridical persons of Kazakhstan, producing crude oil and gas in accordance with the national legislation of Kazakhstan, non‑discriminatory access to pipelines which were partly or fully owned and regulated by the Government in accordance with the national legislation[4] within the available remaining capacities of such pipelines, based on existing rights of access.  The access would be allocated in a fair and equitable manner, and proportional to the production capacity of companies producing crude oil and gas in Kazakhstan.  When applying measures relating to such pipeline transportation, including access to pipelines for foreign invested juridical persons of Kazakhstan producing crude oil and gas in Kazakhstan, the Government of Kazakhstan would ensure that the following principles were respected:  (i) fully transparent legal and regulatory measures on access and pipeline transportation tariffs; (ii) non‑discrimination with respect to the origin of crude oil and gas production within the territory of Kazakhstan and the destination; and (iii) application of non-discriminatory transportation tariffs with respect to foreign and domestic investors.  The Working Party took note of these commitments.

88.      The representative of Kazakhstan added that, according to Article 193-1 of the Civil Code, the sale/purchase of shares and any alienation of objects of strategic importance were subject to approval and authorization by the Government.  The sectors of strategic importance were defined in Article 193-1 of the Civil Code.  The list of objects of strategic importance was approved by Resolution of the Government.

89.      A Member asked Kazakhstan to confirm that the list of objects of strategic importance was currently approved and whether it was publicly available and regularly updated.  The representative of Kazakhstan responded that the list of strategic objects transferred into the authorized capital of and/or owned by national holdings and/or national companies or their affiliates, as well as other juridical persons with State participation, and strategic objects owned by juridical persons non-affiliated to the State, as well as by individuals, was approved by the Resolution of the Government of the Republic of Kazakhstan No. 651 of 30 June 2008.  The list was regularly updated (as last amended on 21 July 2011) and publicly available on the official websites of the Ministry of National Economy of the Republic of Kazakhstan (www.minplan.kz) and the Ministry of Justice of the Republic of Kazakhstan (www.minjust.kz) in both Kazakh and Russian.  

-       State Ownership, State-Trading Entities and Privatization

(a)   Privatization

90.      The representative of Kazakhstan said that privatization-related issues were regulated by Law No. 413-IV "On State Property" of 1 March 2011 (hereinafter: Law "On State Property"), which had replaced Law No. 2721 "On Privatization" of 23 December 1995; the Civil Code of the Republic of Kazakhstan (General Part) No. 269-XII of 27 December 1994 (hereinafter: Civil Code); Law No. 415-II "On Joint Stock Companies" of 13 May 2003 (hereinafter: Law "On Joint Stock Companies"); Law No. 220-I "On Limited Liability and Additional Liability Partnerships" of 22 April 1998 (hereinafter: Law "On Liability Partnerships"); and, Law No. 461‑II "On Securities Market" of 2 July 2003.

91.      State property consisted of both Republican and communal property.  Republican property included the republican budget, the National Fund of the Republic of Kazakhstan, property allocated to republican State enterprises and republican State-run institutions, property of which was in republican ownership, and other property of the Republic of Kazakhstan, except for property at the communal level, i.e., the administrative territorial level.  Communal property included local budget, property allocated to communal State enterprises and communal State-run institutions, property of which was in the communal ownership and other property of the administrative territorial units.

92.      The representative of Kazakhstan said that pursuant to Law  "On State Property", State property could be alienated in the following forms:  (i) privatization via auction, tender, two‑staged bid, on the stock exchange, or by sales of derivatives; (ii) privatization via direct sales; or (iii) other forms of alienation without conducting a tender, for instance, transfer of State property as contribution to the charter capital of limited liability partnerships (LLPs) or purchase of shares of joint‑stock companies (JSCs).  Privatization was the sale of State property to natural persons and non-state juridical persons conducted in accordance with the special procedures established by Law "On State Property".  She further explained that State property was privatized upon decision of the authorized body on State property or a local executive body – in the case of municipal property, except for:  (i) natural monopolies or enterprises with dominant position on the respective market, which were privatized based on the decision of the Government; and (ii) transfer of State property as a contribution to the charter capital of LLPs or purchase of shares of JSCs, which were privatized based on the decision of the Government or a local executive body  in case of municipal property.  The detailed description of the rules and procedures governing the privatization process was available to the public from the State Property and Privatization Committee at the website:  www.gosreestr.kz.

93.      The representative of Kazakhstan stated that the rules for privatization and restrictions on privatization outlined in Law "On State Property" did not apply to national companies and firms (JSCs/LLPs) held by national managing holdings or national holdings, i.e., to subsidiaries of national managing holdings or national holdings.  Alienation of the property of national companies or firms (JSCs/LLPs) held by national managing holdings or national holdings was performed on the basis of the regulations outlined for JSCs/LLPs in Laws "On Joint Stock Companies", "On Limited Liability Partnerships", "On Securities Market" and the Civil Code.  In addition, Law "On State property" stipulated specific provisions for strategic objects.  Disposal of shares of national companies, transferred as a contribution to the charter capital of national managing holdings and national holdings, that were strategic objects, was permitted only by the decision of the Government of the Republic of Kazakhstan.

94.      Concerning the results of privatization, the representative of Kazakhstan informed Members that between 1991 and 2005, Kazakhstan had held six two-year privatization programmes.  Three of the programmes had focused on large scale privatization.  The last two programmes had been developed within the framework of the State Property Management and Privatization Concept.  During the period from 1991 to 2012, a total of 45,631 entities, or approximately 85% of State property, had been privatized (Annex 3(A) of this Report).  Data on State property privatization in various sectors of the economy for 2000-2012 were provided in Annex 3(B) of this Report.  Data on State enterprises and enterprises with State participation were provided in Annex 3(C), Annex 3(D) and Annex 3(E) of this Report.  As a result of the privatization process by 1 January 2013, the total number of existing State enterprises had been 6,827.  By 1 January 2013, among the 364 JSCs with State participation, the State owned 100% of shares in 236 JSCs; from 50% to 100% of the shares in 67 JSCs; 25% to 50% of the shares in 22 JSCs; and less than 25% of the shares in 39 JSCs.

95.      Asked about operations of State-owned and State-controlled enterprises in the agricultural sector and the existence of plans for their privatization, the representative of Kazakhstan replied that agricultural production was predominantly privately owned.  Major commercial activities, including production, distribution and food catering were no longer under State ownership or control.  State intervention in the welfare of the agricultural sector was conducted through National Company "Food Contract Corporation", JSC "KazAgroFinance" and JSC "KazAgroProduct", as outlined in Sub-section (b) below. 

96.      With respect to restrictions in the privatization process, the representative of Kazakhstan informed Members that paragraph 3 of Article 94 of Law "On State Property" determined the category of State property that could not be alienated or privatized.  However, this category of property could be transferred as a contribution to the charter capital of a national managing holding, a national holding or a national company, a limited liability partnership or a joint stock company.

97.      State property not subject to privatization- was approved by Decree of the President No. 422 "On the List of State Property Objects Not Subject to Privatization" of 28 July 2000.  The list of State property objects that could not be privatized included: (i) land (except for land in private ownership on grounds stipulated by the legislation of Kazakhstan), subsurface and water resources, flora and fauna; (ii) natural environmental zones under special protection; (iii) military organizations and property essential for national security; (iv) mainline railroads and highways, as well as accompanying engineering structures, as part of the State international routes network or designed for defence purposes; (v) navigable waterways, as well as lighthouses, navigation devices and seamarks that ensured safety and regulated navigation; (vi) mainline oil and gas pipelines, and interregional electricity networks of 220, 500 and 1,150kV voltage; (vii) water reservoirs with hydraulic facilities, water control pivots, dams and water barrages; (viii) first-aid medical organizations operating in rural areas, specialised medical centres (maternity welfare, radiological medicine, oncology, tuberculosis, HIV/AIDS and STD centres, blood banks, and mental asylums), organizations and centres acting as the sole provider of medical services in a given area; (ix) social protection services, children's homes, orphanages, nursing homes, hospitals and health resorts for the disabled, war veterans, children, and the elderly; (x) secondary schools; and (xi) historic and cultural sites protected by the State.

98.      Asked about "strategic entities", the representative of Kazakhstan explained that Kazakhstan's legislation provided a definition of the term "strategic object", which according to Article 193‑1 of the Civil Code, was a property of social and economic importance for the sustainable development of Kazakhstan's society, the possession, use or disposal of which would affect the national security interests of Kazakhstan.  Strategic objects consisted of main-line railroad networks; mainline oil pipelines; mainline gas pipelines; national electric network; mainline communication lines; national postal network; international airports; international sea ports; air navigation devices of the air traffic control system; devices and navigation signs regulating and ensuring the safety of ships; entities using nuclear energy; space industry entities; water facilities; public roads; and shares (common stocks, ordinary shares) in juridical persons- which owned strategic objects; shares (common stocks, ordinary shares) owned by natural and juridical persons, which could directly or indirectly determine decisions or influence decisions of juridical persons which owned strategic objects.  Strategic objects could be either in State or private ownership.  Strategic objects could be encumbered by third party rights or disposed/sold only on the basis of the decision of the Government.  The Government of Kazakhstan had the priority right to purchase a strategic object at the market price, in case the owner intended to sell such an object.  Strategic objects were enumerated in Resolution of the Government No. 651 of 30 June 2008. 

99.      Concerning the participation of foreign persons in the privatization process, she said that in accordance with paragraph 3 of Article 188 of Law "On State Property", restrictions applied with respect to the sale of strategic objects to foreigners and stateless persons, juridical persons with non-resident participation and their affiliated persons.  Such restrictions applied in a limited number of sectors of Kazakhstan's economy and were described in Section "Investment Regime" of this Report.

100.  In reply to questions on main pipelines, the representative of Kazakhstan said that Law No. 20-V "On Main Pipeline" of 22 June 2012 (hereinafter: Law "On Main Pipeline") was aimed at ensuring effective, secure and safe operation of main pipelines.  Law "On Main Pipeline" also regulated issues related to the ownership of main pipelines as well as the procedure for engineering, construction, operation, and connection of new pipelines to existing pipelines, maintenance control and liquidation of the pipelines.  According to Article 12 of Law "On Main Pipeline", main pipeline was an indivisible property and could be in public or private ownership.  Main pipeline could not be in ownership of natural or juridical persons registered in accordance with the laws of a foreign country.  Main pipeline, shares of juridical persons, which owned the main pipeline as well as shares of natural or juridical persons which could directly or indirectly determine decisions or could influence the decisions of juridical persons which owned the main pipeline, were considered as "strategic objects" as described in paragraph 98.  She also noted that pursuant to Article 16 of Law "On Main Pipeline", the Government had the priority right to participate in an amount not less than 51% ownership in construction projects of main pipelines.  National operator operated the main pipelines on behalf of the Government.  National operator was a juridical person and its controlling shares were owned by the Government, or national managing holding or national company.  In case the Government forewent its priority right, the person who planned to construct a main pipeline could offer participation in the project to other persons or perform the project independently.  However, the conditions for participation in construction of a pipeline offered to other persons could not be more favorable than those offered to the Government.  The Government could take a decision to participate in the construction project with the share less than 51%.  However, the priority right of the Government did not extend to cases of expansion of existing main pipelines. According to Article 4 of Law No. 272-I "On Natural Monopolies and Regulated Markets" of 9 July 1998, main pipelines were natural monopolies.

101.  The representative of Kazakhstan confirmed the readiness of Kazakhstan to ensure the transparency of its privatization process.  Kazakhstan would provide annual reports to WTO Members (along the lines of the information provided to the Working Party) on developments in its privatization process for as long as the process continued.  The Working Party took note of this commitment. 

(b)       State-owned and State-controlled Enterprises, Enterprises with Special and Exclusive Privileges

102.  The representative of Kazakhstan stated that State property in Kazakhstan included the property of State enterprises and State-owned shares (right of participation) in joint stock companies (JSCs) and limited liability partnerships (LLPs) with State participation.  JSCs with majority (i.e., 50% or more) of State participation included national managing holdings, national holdings, and national companies that did not belong to national managing holdings or national holdings. State enterprises were regulated by Civil Code (General Part) No.269-XII of 27 December 1994 (hereinafter: Civil Code), Law No. 413-IV "On State Property" of 1 March 2011 (hereinafter: Law "On State Property") and Law No. 527-IV "On National Security of the Republic of Kazakhstan" of 6 January 2012.  JSCs or LLPs with 50% or more of State participation were governed by Law No. 415-II "On Joint Stock Companies" of 13 May 2003 (hereinafter: Law "On Joint Stock Companies"), Law No. 220-I "On Limited and Additional Liability Partnerships" of 22 April 1998 (hereinafter: Law "On Limited Liability Partnerships"), Law No. 461-II "On Securities Market" of 2 July 2003 and the Civil Code. 

103.  The representative of Kazakhstan emphasized that State enterprises were considered as State‑owned, while JSCs/LLPs with 50% or more of State participation were considered as State‑controlled enterprises.  State enterprises were defined by Law "On State Property" as enterprises established by the Government or local executive bodies to render State services with the objective to address the social and economic needs of the society and the State.  The State was responsible for the liabilities of State enterprises[5] and had the right to dispose their property.  The property assigned to State enterprises entirely belonged to the State, which was indivisible, e.g., could not be distributed among employees of State enterprises or alienated by them.  State enterprises were prohibited to conclude transactions not related to the subject or purpose of their activity, assigned by the Government or local executive bodies. 

104.  Annex 3(F) of this Report contains the list of spheres where State enterprises could be established.  When State enterprises were engaged in commercial activity, the sales of produced goods and services were performed independently, except for transactions aimed at disposing the property, where the approval of the competent authority was required by law.   This requirement resulted from the need to preserve the property of the State and constituted the difference between State enterprises and other types of juridical persons with State participation. 

105.  In reply to a question as to whether Kazakhstan agreed that these firms would be considered as "State-owned" for the purposes of being covered by the commitment in paragraph 142, the representative of Kazakhstan clarified that property of State (owned) enterprises was fully owned and operated by the Government and their activities were under strict control of the Government.  State-owned enterprises were established in the juridical form of a State enterprise which was a separate legal entity from JSCs and LLPs with State participation.  State enterprises could not belong to a national managing holding or a national holding.

106.  The representative of Kazakhstan added that the legislation of the Republic of Kazakhstan did not provide the possibility for the Government to exercise special control or special management of the activities of JSCs and LLPs with State participation, whose shares in full or in part were owned by the State.  In accordance with Kazakhstan's legislation, the JSCs and LLPs with State participation were not State enterprises due to the following reasons:

(i)         the property of JSCs and LLPs did not belong to the State, hence, the Government did not have the right to dispose of their property;

(ii)        the degree of control over operations of JSCs and LLPs was limited to competence of the Government to act as a shareholder or participant;

(iii)       shareholders of JSCs were not responsible for liabilities of the company and borne the risks of losses related to the activities of the company to the extent of the value of the shares owned; and

(iv)       these companies were subject to the rules of corporate governance and the general rules of Law "On Joint Stock Companies" or Law "On Limited Liability Partnerships".  For example, Board of Directors of JSCs included independent directors.  Property of such companies was managed by the management board.

Kazakhstan used the term "State-controlled enterprises" with respect to JSCs or LLPs with 50% or more of State participation.

107.  The representative of Kazakhstan further explained that according to Article 171 of  Law "On State Property", depending on the proportion of State's shares/right of participation, JSCs and LLPs with State participation were divided into two categories:  (i) State-controlled JSCs and LLPs, in the charter capital of which the State owned controlling portfolio of shares (right of participation), i.e., more than 50% of the voting shares (right of participation); and, (ii) JSCs and LLPs with non-dominant shares of participation of the State.

108.  The representative of Kazakhstan further added that according to Law "On State Property", State‑controlled JSCs could be established in the following forms:  (i) national managing holding; (ii) national holding; (iii) national company; and, (iv) JSCs under the government agencies.

109.  A national managing holding was a JSC, the founder and sole shareholder of which was the Government.  National managing holdings were established for effective management of shares (right of participation in charter capital) of national development institutions, national companies and other juridical persons.  There were three national managing holdings in Kazakhstan:  National Welfare Fund "Samruk-Kazyna", National Managing Holding "KazAgro" and National Managing Holding "Bayterek".

110.  A national holding was a JSC, the founder and sole shareholder of which was the Government, established for effective management of shares of national companies and other JSCs, and rights of participation in the charter capital of LLPs.  There were two national holdings in Kazakhstan:   National Info-Communication Holding "Zerde" and National Scientific‑Technological Holding "Parasat"[6].

111.  A national company was a JSC, established by a decision of the Government or local executive bodies, controlling portfolio of shares of which belonged to the State, a national managing holding or a national holding, which operated in the spheres that formed the core of the national economy, or established for promoting development of the economy of regions (socio‑entrepreneurial corporations).  The national companies, controlling shares (50% and more) of which belonged to national managing holdings and national holdings, were not considered to be State-controlled JSCs as defined in Kazakhstan's law.  The national companies, controlling shares of which did not belong to national managing holdings or national holdings, but managed by the government agencies, were considered as State-controlled.

112.  With respect to national managing holdings, national holdings, and national companies[7] and other State-controlled JSCs and LLPs, the Government exercised the following competences (Article 11 of Law "On State Property"):

-           took decisions on the establishment, reorganization, change of the title and liquidation of a company;

-           determined the procedure for elaboration, approval, monitoring and evaluation of development strategies and plans; and

-           determined the procedure for reporting on implementation of development strategies and plans.

113.  The representative of Kazakhstan noted that Kazakhstan applied local content requirements, in the form of preferences for purchase of locally produced goods, with the objective to diversify the national economy.  In accordance with Kazakhstan's legislation, local content requirements applied in procurement of goods and services[8] by JSC National Welfare Fund "Samruk-Kazyna"; JSC National Managing Holding "KazAgro"[9]; JSC National Info‑Communication Holding "Zerde"; JSC National Scientific and Technological Holding "Parasat"; national companies that did not belong to national managing holdings or national holdings listed above; and in procurement by other JSCs and LLPs with 50% or more of State participation and State-owned enterprises (referred to in Section "Government Procurement" of this Report).

114.  In reply to a question, the representative of Kazakhstan also clarified that National Managing Holding "KazAgro", National Info-Communication Holding "Zerde", National Scientific‑Technological Holding "Parasat" and State-controlled national companies conducted procurement of goods and services in accordance with their own Procurement Rules, which stipulated local content requirements by application of conditional price discounts in total of up to 20% for locally produced goods and services in tender procurements.  These Procurement Rules had been elaborated on the basis of the Model Procurement Rules approved by Government Resolution No. 787 of 28 May 2009.

115.  The representative of Kazakhstan added that, Article 177 of Law "On State Property" and Article 13 of Law "On Joint Stock Companies" provided for the possibility of introduction of a golden share by the decision of the shareholders.  The golden share could be owned by the Government or by a private shareholder.  At present, the Government did not own any such share.  She further clarified that a "golden share" did not participate in the formation of the charter capital and earned no dividends.  The owner of a "golden share" had the veto right with regard to decisions of the general shareholder meetings, the Board of Directors and the executive body on the issues, determined by the Charter of the company.  The veto right was non-transferrable.

116.  The representative of Kazakhstan emphasized that the Government's role in the decision making process and activities of State enterprises, as well as JSCs/LLPs with State participation was strictly defined by the legislation of the Republic of Kazakhstan.  The Constitution of the Republic of Kazakhstan stipulated equal protection of both private and State property and ensured that the principle of non-discrimination would be observed regarding the treatment of companies and enterprises of different forms of property rights.  The Constitution also provided for the regulation and restriction of monopolistic activity.  In her view, this was a sound guarantee that State enterprises and JSCs/LLPs with State participation would not act in a manner that would distort the competitive environment. 

117.  In response, a Member noted that the Government owned 100% of the shares of national managing holdings and national holdings, and thus exercised control of both the national managing holdings and national holdings, and any JSCs in which the national managing holdings and national holdings owned 50% or more of the shares.  Thus, each of the forms of JSCs described in paragraph 108 as well as those national companies where the Government or a national managing holding, or a national holding owned 50% or more of the shares were subject to the provisions of paragraph 142.

118.  In addition, the representative of Kazakhstan presented statistical data on the participation of State enterprises in the economy (Annex 3(G) of this Report), which demonstrated that the share of State property, including State enterprises, in the total Gross Value Added[10] accounted for 9.6% in 2011.  In particular, the share of State property, including State enterprises, in agriculture, forestry and fishery in 2011 accounted for 6.8% of the Gross Value Added.  The share of services produced by State enterprises in 2011 accounted for 14.8% in Gross Value Added (see Annex 3(H) of this Report). 

119.  A Member requested Kazakhstan to enumerate all enterprises that were State-owned or controlled and all enterprises that enjoyed special privileges, based on an agreed standard, in respect to Kazakhstan's energy sector, and to provide detailed descriptions of all such enterprises in the energy sector.  This Member also requested Kazakhstan to provide a more detailed description of "KazMunaiGaz" and the so-called "natural monopolies" that operated pipelines.

120.  The representative of Kazakhstan replied that there were no enterprises with special privileges in the energy sector of Kazakhstan within the meaning of Article XVII of the GATT 1994.  For example, National Company "KazMunaiGaz" accounted for 11% of the total production of the oil and gas sector (according to data in 2010).  "KazMunaiGaz" was engaged in the extraction, transportation and processing of oil and natural gas.  The company's main activities included exploration and survey work, development of oil, gas and gas condensate deposits; production and transportation of oil and natural gas; primary processing of oil and gas; and sales of hydrocarbons and processed products.  In the oil transportation sector, JSC "KazTransOil", a subsidiary of "KazMunaiGaz", operated the Uzen – Atyrau (Kazakhstan) – Samara (Russia) oil pipeline.  This part of the activity was regulated by the Committee on Regulation of Natural Monopolies and Protection of Competition of the Ministry of National Economy.  With respect to gas transportation, the principal transporter of natural gas by main-line pipelines was "Intergas Central Asia", a subsidiary of "KazMunaiGaz".  It provided domestic transportation, international transit and export transportation services.  Tariffs for transportation services rendered to domestic consumers were regulated by the Committee on Regulation of Natural Monopolies and Protection of Competition of the Ministry of National Economy.  Tariffs for export routes and transit of natural gas by pipelines were not subject to State regulation. 

121.  The representative of Kazakhstan explained that a number of companies with 50% or more of State participation in equity had been included in the portfolio of National Welfare Fund "Samruk‑Kazyna", a national managing holding, established in the form of the JSC with 100% participation of the State.  The Fund had been established with the objective to improve corporate governance in national companies and enhance the competitiveness of the national economy.  Independent ownership also allowed companies to operate more as commercial entities and generate their own profits.  The sole founder and shareholder of the Fund was the Government of the Republic of Kazakhstan, which managed the Fund exclusively through fulfilling the competences of the shareholder and through representation in the Board of Directors.  The Prime Minister of Kazakhstan ex officio chaired the Board of Directors.  The Fund interacted with its companies through exercising functions of the shareholder and its representation in their Boards of Directors.

122.  In reply to the request of a Member for further clarifications on the role of the Government, the representative of Kazakhstan stated that according to Article 7 of Law No. 550-IV "On the National Welfare Fund" of 1 February 2012 (hereinafter: Law "On the National Welfare Fund"), exclusive competences of the Government, as the sole shareholder of National Welfare Fund "Samruk-Kazyna", were stipulated as the following:

1) Approval and introduction of amendments and addenda to the Charter of the Fund;

2) Approval of the Annual Financial Statement of the Fund;

3)         Approval of the Development Strategy of the Fund and introduction of amendments and addenda to the Strategy;

4) Decision making on voluntary reorganization and liquidation of the Fund;

5)         Decision making on increase of number of authorized shares of the Fund or changing the type of unallocated authorized shares of the Fund;

6)         Determination of the term of office of the Board of Directors of the Fund, election of its members and early termination of their office;

7)         Sales of shares of the daughter companies, determined by the sole shareholder of the Fund, and transfer of these shares into trust management;

8)         Decision making on liquidation and reorganization of daughter companies, determined by the sole shareholder of the Fund;

9) Appointment and early termination of office of the Chairman of the Board;

10)       Distribution of net income for the reporting financial year, payment of dividends on ordinary shares and approval of the amount of dividends per one ordinary share of the Fund;

11)       Decision making on non-payment of dividends on ordinary shares in cases, stipulated by Law "On Joint Stock Companies";

12)       Approval of the dividend Policy of the Fund;

13)       Approval of the decision of the Board of Directors of the Fund, on the price, quality and structure of placement of shares of companies within the Fund, offered on the stock market for the purposes of implementing a decision of the Government of the Republic of Kazakhstan;  

14)       Decision making on the purchase and sales of shares of banks and transfer thereof to trust management;

15)       Approval and introduction of amendments into the Code of Corporate Governance; and,

16)       Other issues according to Law "On the National Welfare Fund" and/or Charter of the Fund.

123.  The representative of Kazakhstan stated that the selection of the Board of Directors was performed on the basis of Law "On Joint Stock Companies" and Law "On the National Welfare Fund".  In accordance with Article 35 of Law "On Joint Stock Companies", the Government, as a single shareholder, had the exclusive competence to select members of the Board of Directors.  Pursuant to Article 8 of Law "On the National Welfare Fund", the Board of Directors consisted of the Chairperson and members elected by the single shareholder.  The Board of Directors was formed from the Cabinet members, CEO, independent Directors and other persons.  The number of Directors was defined by the Charter of the Fund, provided that the number of independent Directors was not less than two-fifths of the total number of the Board of Directors. The criteria and procedure for selecting independent Directors were set in Article 1 of Law "On Joint Stock Companies" and the Rules for the Election of Independent Directors.  In particular, independent Directors could not (be):

-       affiliated with the given JSC, nor affiliated with the affiliated persons of the given JSC    within the last three years prior to election;

-       in subordination with an executive of the given JSC or organizations - affiliated persons of    the given JSC within the last three years prior to election;

-       a civil servant;

-       a representative of the shareholder at the meetings of the bodies of the given JSC within    the last three years prior to election; and

-       have participated as an auditor in auditing of the given JSC within the last three years prior to election.

124.  Strategic decisions of the Fund's companies were made from the perspective of increasing their long-term value and effective management of assets.  The Government did not interfere in the day-to-day activities of the Fund.  The Government was not accountable for liabilities of companies under National Welfare Fund "Samruk-Kazyna", and was not authorized to dispose of their property.  The companies under "Samruk-Kazyna" were neither "State enterprises", nor companies with State participation, since their shareholder was National Welfare Fund "Samruk-Kazyna", and not the Government of the Republic of Kazakhstan. 

125.  The representative of Kazakhstan stated that, based on data provided by the Statistics Agency of the Republic of Kazakhstan, "Samruk-Kazyna" accounted for 7.2% of Kazakhstan's GDP in 2011 and 5.3% in 2012.  According to the Statistics Agency of Kazakhstan, the share in GDP of other national managing holdings, national holdings and their entities in total constituted less than 0.5%.  A Member noted that, in contrast, in October 2013, Fitch Ratings had noted "Samruk-Kazyna"'s 100% State ownership and its strategic significance to Kazakhstan's economy, and stated that the consolidated assets of "Samruk-Kazyna" and its 405 subsidiaries were equivalent to 50% of the country's GDP.  Fitch added that its investment accounted for 7-10% of GDP per year, and that 27% of Kazakhstan's total tax revenues and 6% of its total employment were also accounted for by this national holding company.  In response, the representative of Kazakhstan noted that methodologically, consolidated assets of "Samruk-Kazyna" could not be compared to the GDP of Kazakhstan because the GDP represented the total value of final goods and services produced within a country during a specified time period.  In 2012, more than half of the GDP, i.e., 52.5%, was accounted for by services, while production of goods constituted 41.4%.  In the services sector, "Samruk‑Kazyna"'s subsidiaries engaged mainly in transportation and communication services.  The share of transportation and warehousing services constituted 7.5% of GDP, while the share of information and communication services constituted 2.6% of GDP.  Companies providing services in both sectors were operating in a competitive environment along with other private companies.  The share of oil and gas production in GDP was 14.7%.  In accordance with data from the Statistics Agency, the share of "Samruk-Kazyna"'s oil and gas producing subsidiary "KazMunaiGaz" in GDP in 2012 was 2.24%.

126.  In reply to the question of a Member, the representative of Kazakhstan stated that privatization of national companies, national holdings, national managing holdings and the companies they held was conducted by the means of alienation of shares of the above-mentioned companies.  The legal basis for alienation of shares of such companies was Law "On the Joint Stock Companies".  Pursuant to paragraph 2.15 of Article 53 of this Law, the decision on alienation of 10% or more shares of the daughter and affiliated companies of National Welfare Fund "Samruk-Kazyna" was under the competence of the Board of Directors of the Fund.  Pursuant to Government Resolution No. 280 "On Approval of Complex Plan of Privatization for 2014-2016" of 31 March 2014, as amended on 30 April 2014, the Government recommended to national holdings, national managing holdings and national companies to approve the list of daughter and affiliated companies subject to transfer into competitive environment.  There were 106 companies of National Welfare Fund "Samruk-Kazyna" subject to alienation primarily by means of bidding and four companies were subject to "Halyk IPO" procedure. At the moment, one of "Samruk-Kazyna"'s companies, "KazTransOil", had been listed for partial privatization in the form of Halyk (People's) IPO, i.e., offering 10% (minus one share) for private purchase in December 2012.  More recently, "Samruk-Kazyna" announced plans for a similar 10% (minus one share) public listing of the Kazakhstan Electricity Grid Operating Company ("KEGOC") for November 2014.  Other partial public listings (i.e., under 10% of shares) of "Samruk Energy", "KazAtomProm" and "KazTemirZholy" were contemplated later in the decade.  The companies subject to privatization operated in the spheres of oil and gas, transportation, energy, telecommunication, services and education. 

127.  The majority of the Fund's portfolio consisting of key national companies operating in oil extraction, telecommunication, mining, railway, electric power transmission and the defence industry, included:  "KazMunaiGaz", "Kazakhtelecom", "Kazakhstan Temir Zholy", "KEGOC" "Kazpost", "Samruk-Energo", National Atomic Company "Kazatomprom", "Kazakhstan Engineering", "Air Astana" and "Samruk-Kazyna Pharmacia"[11].  Other holdings of "Samruk-Kazyna" were represented by companies operating in the financial sector, transportation and the chemical industry.  For the most part, the "Samruk‑Kazyna" companies were classified as "strategic objects" as they operated assets indicated in paragraph 98.  Services provided by national companies in the spheres classified as natural monopolies were regulated in accordance with Law No. 272-I "On Natural Monopolies and Regulated Markets" of 9 July 1998 (for more detailed information see Section  "Pricing Policies" of this Working Party Report). 

128.  National Company "Kazakhtelecom" was an operator of fixed-line telephony services, which rendered traffic transit services providing connection between operating networks of countries bordering Kazakhstan.  National Company "Kazpost" rendered public postal services, including delivery, distribution and mailing of periodicals, cash transactions in settlements, and mailing of registered letters within the geographical boundaries of Kazakhstan.  National Company "Kazakhstan Temir Zholy" rendered main railway network services, cargo transportation services in domestic and import-export routes, and passenger transportation services.   National Company "KEGOC" rendered electric power transmission services via the national electricity grid, technical traffic control services, regulation and reservation of electric power, and management of electric power production-consumption balance.

129.  JSC "Samruk-Energo" operated in the following spheres: production of electric and heating energy; transmission and distribution of electric energy; coal mining; and reconstruction, extension and construction of energy-related facilities.   National Atomic Company "KazAtomProm" was engaged in the following activities:  geological exploration; uranium extraction; production of nuclear fuel cycle products; construction of reactors and nuclear power plants; nonferrous metals industry; and building of construction materials.   National Company "Kazakhstan Engineering" was a holding company managing enterprises related to production of goods and services for national defence and law enforcement purposes.  JSC "Air Astana" was an airline company, which rendered air transportation services in international and local directions.   LLP "Samruk-Kazyna Pharmacia" was the single distributor of pharmaceuticals within the framework of the Government's programme providing guaranteed free medical treatment to the population.

130.  The representative of Kazakhstan stated that in 2011, Government Resolution No. 1027 of 8 September 2011 approved the "Programme on Sales of Shares of Daughter and Affiliated Companies of National Welfare Fund "Samruk-Kazyna" on the Stock Market", i.e., the "Halyk IPO".  Subsequently, "Samruk-Kazyna" approved the programme on the sales of minority shares of the JSC "KazTransOil" on the stock market.  A Member requested Kazakhstan to provide a description of "KazTransOil", information on percentage of shares authorized for sales and on quantity of shares that had been sold, and implications of the sales in terms of management control.  The representative of Kazakhstan replied that JSC "KazTransOil" was a subsidiary of National Company "KazMunaiGaz", which transported crude oil and oil products through the main pipelines.  The shares of "KazTransOil" were offered to the citizens of Kazakhstan and pension funds of the Republic of Kazakhstan.  The citizens of Kazakhstan owning the shares would be able to participate in the management of the company by voting in the general shareholder meetings, and would be entitled to receive dividends paid from the net income of the company.  Overall, 10% minus one share of the authorized common shares of "KazTransOil" had been placed on the stock market, and approximately 80% of these shares had been sold to more than 34,000 citizens of Kazakhstan. 

131.  "Samruk-Kazyna" managed its subsidiaries in accordance with Law "On Joint Stock Companies".  Procurement of goods and services by the Fund and organizations in which the Fund directly or indirectly owned 50% or more of the voting shares (right of participation), was conducted in accordance with the Procurement Rules, approved by the Board of Directors of the Fund on 26 May 2012.  In reply to a Member's question as to whether the requirement for local content in procurement for "Samruk-Kazyna" was initiated with the May 2012 Procurement Rules, the representative of Kazakhstan explained that initially the local content requirements had been introduced by the Procurement Rules approved by the Decision of the Board of Directors of 18 November 2009 in accordance with the previous Law "On the National Welfare Fund".  The currently applied Procurement Rules were approved in accordance with the new Law "On the National Welfare Fund".  Local content provisions had been introduced into the Procurement Rules of National Welfare Fund "Samruk‑Kazyna" in 2009, as part of the Government efforts to overcome negative impact of the global financial crisis of 2008-2009 in the economic growth of the country.  In particular, the local content provisions were aimed at stabilization of the social and economic situations in 27 single industry towns of Kazakhstan and maintaining jobs in the enterprises, including small and medium-sized businesses, which formed the core business activities of these towns.  The Procurement Rules did not apply to companies, in which the Fund's share ownership (right of participation) was less than 50%.  Tender was the main method applied for the procurement of goods and services.  The Procurement Rules stipulated criteria for the evaluation of bids and provided for the application of conditional price discount in total of up to 20% for locally produced goods and services.

132.  Asked to describe the structure of the local content requirements in procurement contracts in terms of scope and duration, the representative of Kazakhstan stated that the procurement contracts, concluded by "Samruk-Kazyna" and its companies, had to contain the local content provisions, which were indicated by a supplier in his/her tender offer or price quotation.  "Samruk-Kazyna" and its companies signed a contract with a supplier who accepted the lowest conditional price, as a result of application of conditional price discounts, provided that the technical requirements of tender documentation had been met.  Thus, there were several factors affecting tender results, such as conformity with technical requirements, proposed price for goods and services, and the share of local content in goods or services.

133.  A Member requested to clarify which firms were engaged in commercial activities and distinguish them from those that were conducting business for the Government.  The representative of Kazakhstan replied that all "Samruk-Kazyna" subsidiaries were engaged in commercial activities, except for JSC "Kazakhstan Engineering".  JSC "Kazakhstan Engineering", along with machinery construction products and engineering services in commercial sphere, produced goods for national defence purposes.  LLP "Samruk-Kazyna Pharmacia" conducted procurement of pharmaceuticals, medical equipment and materials which were distributed to public hospitals and polyclinics for provision of guaranteed free medical treatment to the population by the State.  She noted that, at the same time, pursuant to Government Resolution No. 516 of 25 May 2013, 100% portfolio of right of participation in LLP "Samruk‑Kazyna Pharmacia" had been transferred to the State ownership from National Welfare Fund "Samruk-Kazyna".  

134.  Some Members noted that in practical, if not in legal, terms, many of the enterprises in Kazakhstan appeared to enjoy exclusive or special privileges.  These Members of the Working Party requested Kazakhstan to submit a draft notification prepared in conformity with the provisions of Article XVII of the GATT 1994 and sought a strong commitment from Kazakhstan that State enterprises, including JSCs/LLPs with State participation, engaged in commercial activities operated in compliance with WTO provisions, including on a commercial basis.  A Member noted that Kazakhstan had acknowledged the existence of about 6,000 State‑owned enterprises and JSCs and LLPs with State participation in their ownership, which included a number of State‑controlled enterprises, some of them involved in import/export operations, and enquired whether a number of these enterprises, including JSCs and LLPs with State participation, would qualify as State-trading enterprises under the criteria set out in Article XVII of the GATT 1994, whether or not "funded by the national budget" or operating as monopolies.  This Member pointed out that the substantive provisions of Article XVII of the GATT 1994 were applicable to State‑controlled enterprises, such as JSCs and LLPs with State participation in their ownership even without special or exclusive privileges that made them eligible for notification, and that the obligations of these provisions also applied to all purchases and sales "involving either import or export".  This Member requested Kazakhstan to submit a revised notification on State-trading enterprises.

135.  The representative of Kazakhstan replied that there were only three companies, subsidiaries of National Managing Holding "KazAgro", that were involved in import and export operations with the use of budget funding: National Company "Food Contract Corporation", JSC "KazAgroProduct" (formerly known as "Mal Onimderi Korporatsiyasy") and JSC "KazAgroFinance".  However, the representative of Kazakhstan asserted that these enterprises did not fall under notification obligations of the Understanding on Article XVII of the GATT 1994 as they enjoyed neither exclusive, nor special rights with respect to the importation or exportation of goods. 

136.  National Company "Food Contract Corporation" had been established to ensure the country's food security by maintaining and renewing the State grain reserves through the State grain resources.  "Food Contract Corporation", as an agent of the Government, had the exclusive right to implement the budget programme on procurement, storage and transportation of State grain resources (comprising of State grain reserves and realization resources), as well as the stocks for market interventions.  The Government approved the rules governing purchases for State grain resources and annually established the volumes and prices for such purchases.  The Government had the right to use State resources as food aid to foreign countries through "Food Contract Corporation".  "Food Contract Corporation" conducted its foreign trade operations in competition with private traders and subject to market prices.  The total share of procurement of "Food Contract Corporation" constituted 16.8% of the total volume of grain produced in Kazakhstan.  In response to the question of a Member, the representative of Kazakhstan stated that the local content requirements were stipulated in the Rules on Procurement of Goods and Services of "Food Contract Corporation" approved by the Decision of the Board of Directors of 24 November 2009.  In particular, paragraph 30 of the Rules provided for conditional price discounts of up to 20% for domestically produced goods and services in procurements conducted via tender. 

137.  JSC "KazAgroProduct" had been established in 2001 with the objective to support domestic producers of livestock products.  The company was engaged in: (i) procurement, storage, processing and the sale of livestock, raw materials and livestock products in the domestic market and for export; (ii) importation of agricultural and livestock products for further processing and sale; and, (iii) purchase (including importation) of specialized transport, technological equipment for processing and storage of agricultural and livestock products for the company's needs or for sale.  The company conducted import and export operations alongside private companies in a competitive environment and its share was less than 1% of the total volume of meat produced in Kazakhstan.  In reply to a specific question, the representative of Kazakhstan stated that "KazAgroProduct" conducted its procurement of goods and services in accordance with the Procurement Rules approved by the Decision of the Board of Directors of 18 April 2011.  The Procurement Rules provided for application of a conditional price discount in total of up to 20% for locally produced goods and services in procurements conducted via tender, which was a mandatory method for procurements exceeding 4,000 monthly calculation index[12].  She further added that since 2007 there were no purchases of specialized transport and technological equipment for processing and storing of agricultural and livestock products.  Therefore, there were no local content requirements applied for those particular types of purchases.

138.  JSC "KazAgroFinance" was established to implement the State policy aimed at creating a competitive agricultural sector through rendering financial services and provision of agricultural machinery and equipment under financial leasing schemes.  "KazAgroFinance" purchased agricultural machinery in the domestic and international markets for subsequent leasing to farmers.  In the sphere of foreign economic activity, "KazAgroFinance" was engaged in importation of agricultural machinery, equipment, and animals, and had no monopoly or any other exclusive rights or privileges in this sphere.  The Government did not regulate the prices, the volume or the types of agricultural machinery or equipment purchased by the company.  All such decisions were made by "KazAgroFinance" in accordance with available financial resources and based on applications from agricultural producers with the specification of the type of machinery they planned to lease from "KazAgroFinance".  The Government determined only the interest rates in leasing schemes and other financial support programmes of "KazAgroFinance" funded from the State budget, and did not regulate the interest rates for its financing activities funded from other sources.  In reply to a question, the representative of Kazakhstan explained that "KazAgroFinance" conducted its procurement of goods and services in accordance with the Procurement Rules approved by the Decision of the Board of Directors of 4 April 2011.  The Procurement Rules provided for application of a conditional price discount in total of up to 20% for locally produced goods and services in procurements conducted via tender.  However, procurement of agricultural machinery and equipment for subsequent leasing to agricultural producers was conducted based on applications from farmers.  Therefore, conditional price discounts foreseen for procurements via tender were not applied to the purchases of agricultural machinery and equipment for subsequent leasing to agricultural producers.  She added that according to the data provided by the Ministry of Investments and Development, in her view, the share of local content in the procurement of "KazAgroProduct" and "KazAgroFinance" was insignificant.  For instance, in 2012 "KazAgroProduct" purchased goods for the amount of KZT 24.5 million, of which local content composed around KZT 2.5 million or 10%.  In 2012, "KazAgroFinance" purchased goods for the amount of KZT 48.6 billion, of which local content constituted only KZT 2 billion or 4.2%.

139.  With the objective to facilitate the growth and diversification of the economy, attract investments and develop clusters through optimization of the management system of development institutions and financial organizations, National Managing Holding "Bayterek" had been established by Decree of the President of the Republic of Kazakhstan No. 571 of 22 May 2013.  The following subsidiaries of National Welfare Fund "Samruk-Kazyna" had been transferred to "Bayterek":  JSC "Development Bank of Kazakhstan", JSC "Kazyna Capital Management", JSC Export-Credit Insurance Corporation "KazExportGarant", JSC "Investment Fund of Kazakhstan", JSC Entrepreneurship Development Fund "Damu".  The portfolio of "Bayterek" also included a number of JSCs previously supervised by government agencies, such as:  JSC "National Agency on Technological Development" (formerly under the auspices of the Ministry of Industry and New Technologies);  JSC "Zhilstroysberbank of Kazakhstan", JSC Mortgage Organization "Kazakhstan's Mortgage Company", JSC "Kazakhstan's Fund on Guaranteeing Mortgage Loans" (formerly under the auspices of the Ministry of Regional Development); and, JSC "Distressed Assets Fund" (formerly under the auspices of the Ministry of Economy and Budget Planning).

140.  In reply to the question from a Member regarding the establishment of State monopolies in the field of importation or exportation of goods, the representative of Kazakhstan replied that currently Kazakhstan did not maintain nor envisage the establishment of State monopolies for importation or exportation of goods, except for exports of sturgeon roe and other sturgeon products.  According to Article 11-1 of Law No. 593-II "On Protection, Reproduction and Use of Fauna" of 9 July 2004, exports of sturgeon roe and other sturgeon products, as well as the activity for catching  Acipenseridae fish species and their procurement and processing, were  referred to the sphere of State monopolies.  In 2011, the Government had established the state monopoly, Ural-Atyrau Sturgeon Fishing Plant.  Kazakhstan was planning to notify the enterprise as provided for in the Understanding on Article XVII of the GATT 1994.

141.  In response to the request from a Member, the representative of Kazakhstan stated that the local content requirements in the form of 20% conditional price discount were applied in procurements of national managing holdings, national holdings and national companies, as well as other JSCs and LLPs with 50% or more of State participation.  In response to the question from a Member, the representative of Kazakhstan replied that the entities described from paragraph 109 to paragraph 114 above and paragraph 937 of Section "Government Procurement" of this Report were the only entities in Kazakhstan, other than those described in Section "Trade Related Investment Measures" of this Report, that must comply with the local content provisions when seeking to purchase goods, services or works.  Currently the following State-controlled companies existed in Kazakhstan: 

-       three national managing holdings ("Samruk-Kazyna",  "KazAgro" and "Bayterek");

-       two national holdings ("Zerde" and "Parasat");

-           33 national companies (including 10 under the national managing holdings); and

-           944 JSCs and LLPs managed by the government agencies.

142.  The representative of Kazakhstan confirmed that Kazakhstan had State-owned and State‑controlled enterprises that operated in the commercial sphere, including national companies, national managing holdings, national holdings and any JSCs in which the national managing holdings and national holdings owned 50% or more of the shares.   She further confirmed that from the date of accession of Kazakhstan to the WTO, such enterprises, when engaged in commercial activity, would make purchases, which were not intended for governmental use, and sales in international trade in a manner consistent with applicable provisions of the WTO Agreement.  She confirmed in particular, that such enterprises would make such purchases and sales in accordance with commercial considerations, including price, quality, availability, marketability, and transportation, and would afford enterprises of other WTO Members adequate opportunity in conformity with customary business practice, to compete for participation in such purchases or sales.  She also confirmed that within the scope of the services commitments of Kazakhstan, including the limitations, set-out in its WTO Schedule of Specific Commitments on Trade in Services, the rights and obligations of Kazakhstan under the WTO General Agreement on Trade in Services, and the regulatory measures of Kazakhstan covered by the WTO Agreement, including pricing regulations, and without prejudice to such commitments, rights, obligations, and measures that are consistent with these commitments, rights and obligations, Kazakhstan would ensure that such enterprises would act in accordance with the provisions set-out in this paragraph.  She further confirmed that these commitments were without prejudice to the transition period for investment contracts concluded under Law No. 291-IV "On Subsurface and Subsurface Use" of 24 June 2010 set-out in paragraphs 896 and 897 and to Kazakhstan's participation in negotiations on joining the WTO Agreement on Government Procurement or its offer on covered entities in such negotiations.  She also confirmed that, upon accession, Kazakhstan would notify enterprises falling within the scope of the Understanding on Article XVII of the WTO General Agreement on Tariffs and Trade 1994.  The Working Party took note of these commitments.

-       Pricing Policies

143.  The representative of Kazakhstan stated that the legal basis for the policy of regulation of natural monopolies within the EAEU was Section XIX "Natural Monopolies" (Article 78) and Annex No. 20 "Protocol on Common Principles and Rules of Regulation of the Activity of Natural Monopolies" of the EAEU Treaty.  These provisions replaced the CU Agreement on Common Principles and Rules of Regulation of Activity of Natural Monopolies of 9 December 2010, which was terminated when the EAEU Treaty came into effect on 1 January 2015.  From 1 January 2015, Section XIX and Annex No. 20 of the EAEU Treaty provided for basic principles and rules of regulation of activities of natural monopolies.  The EAEU Treaty aimed at ensuring balance of interests of consumers and natural monopolies, effectiveness of functioning and development of natural monopolies, and harmonization of national legislations in this sphere.  In particular, Annex No. 20 to the EAEU Treaty provided for non‑discriminatory access to services rendered by natural monopolies of an EAEU member State to consumers from the other EAEU member States provided technical capacities were duly available.  Regulation of tariffs was based on the principle of separate accounting of costs related to services provided by natural monopolies.  When regulating tariffs, the following criteria were taken into account: (i) recovery of economically justified costs related to regulated activities; (ii) earning of economically justified profits; (iii) promotion of cost effectiveness; and, (iv) formation of tariffs taking into account reliability and quality of services rendered by natural monopolies.

144.  Pursuant to Chapter VII of Annex No. 19 "Protocol on Common Principles and Rules of Competition" to the EAEU Treaty, price regulation could be introduced on the goods markets which were not in the state of natural monopoly in exceptional cases, which included, inter alia, emergency situations and natural calamities, national security interests, and for particular types of socially important products.

145.  The Eurasian Economic Commission (hereinafter: Commission or EEC) upon request of an EAEU member State could adopt a decision on necessity of repealing the regulated price.  The Commission's decision was implemented in accordance with the national legislation of a member State.  However, this competence did not extend to the  services sector, natural monopolies, state procurement and interventions, and the following goods: (i) natural gas; (ii) liquefied gas for household needs; (iii) electric and heating energy; (iv) vodka, liquor and other alcohol products with strength above 28% (minimum price); (v) ethyl spirits from food raw material (minimum price); (vi) solid and heating fuel; (vii) production of nuclear energy cycle; (viii) kerosene for household needs; (ix) oil products; (x) pharmaceuticals; and, (xi) tobacco products.

146.  The representative of Kazakhstan said that Law No. 272-I "On Natural Monopolies and Regulated Markets" of 9 July 1998 (hereinafter: Law "On Natural Monopolies") had established the legal framework for State regulation in the sphere of natural monopolies and regulated markets, including price setting by natural monopolies and regulated market participants.  Law "On Natural Monopolies" was aimed at protecting the interests of consumers, natural monopolies and regulated markets, as well as balancing consumer interests vis-à-vis the interests of natural monopolies.  A natural monopoly was deemed to exist in a market in which creation of a competitive environment for the provision of a particular type of services / goods / works was not possible or economically viable, due to the technological characteristics of the production process and supply of services / goods / works.  State regulation was implemented through establishing: (i) tariff rates / prices / fee rates; (ii) tariff estimates; (iii) temporary compensatory tariffs; (iv) temporary decreasing coefficients; (v) special order for cost formation; (vi) separate calculation of revenue, expenditures and used assets for each type of regulated activities; and, (vii) coordination of accounting policies.  The coverage of Law "On Natural Monopolies" extended to both foreign and domestic juridical persons (their branches and representative offices), individual entrepreneurs, public bodies and natural persons in Kazakhstan.  The provisions of Law "On Natural Monopolies", however, did not extend to individual entrepreneurs and juridical persons, engaged in activities classified as natural monopolies related to the construction and operation of facilities used for their own needs.  She added that by Order of the Agency on Regulation of Natural Monopolies No. 91-OD of 19 March 2005 the "Rules on Increase or Decrease of Tariffs (Prices, Rates and Fees) or the Maximum Levels for Rendered Services (Goods, Works) Subject to Regulation" (hereinafter: Rules on Tariffs) had been approved.  Pursuant to Law "On Natural Monopolies" and the Rules on Tariffs, the maximum level at which tariffs were set, as well as any tariff rate changes, had to cover the production cost of services rendered and take into account the profit margin required for effective operation.  In addition, many of these controls regulated the price of certain goods (e.g., energy) supplied to households and other non-commercial users, and were also based on domestic social policy considerations.  The list of services regulated by the State as natural monopolies is contained in Annex 4 of this Report. 

147.  A regulated market participant set a ceiling price for its goods / works / services based on production and marketing costs, as well as profit margins.  The ceiling price had to be approved by the authorized body as being reasonable, based on the findings of a price appraisal.  A regulated market participant had the right to decrease and increase the price for produced / sold goods works / services within the ceiling price level. 

148.  She added that by Government Resolution No. 1005 of 30 September 2010 the "Programme on the Tariff Policy of the Republic of Kazakhstan for 2010-2014" had been approved. The Programme was aimed at establishing an effective and balanced regulation system in the sphere of natural monopolies, which encouraged investments in modernization and technological upgrades, quality improvements and enhancement of competitiveness of the infrastructural sectors.  She added that the legislation did not prevent foreign and domestic enterprises from competing in sectors dominated by natural monopolies.  In response to a specific question, she confirmed that "natural monopoly" was a legal term.

149.  The representative of Kazakhstan noted that all natural monopolies were subject to a uniform set of requirements and applied prices / tariffs that were approved by the Committee on Regulation of Natural Monopolies and Protection of Competition of the Ministry of National Economy (hereinafter in this Section: Committee).  When considering applications, the Committee conducted a financial and, if necessary, technical evaluations of the proposed increases while taking into account the operations of other similar enterprises.  The tariffs approved by the Committee had to cover costs required to provide the regulated services and take into account an adequate level of profits necessary to ensure the company's efficient operation.  Based on the outcome of the review, the Committee developed a preliminary decision, which was discussed at public hearings (consultation process).  The Committee was required to hold public hearings when reviewing applications of natural monopolies for approval of tariffs ceiling levels.  Public hearings involved members of local executive branches, representatives from Government agencies, consumers and their public associations, independent experts, as well as the applicant (natural monopoly).  Relevant information (e.g., Committee decisions) was published regularly in the media and was available on http://www.kremzk.gov.kz/eng/.  Asked to provide the list of natural monopolies, she referred to the website: http://www.kremzk.gov.kz/eng/ menu2/registry/resp_razd/.

150.  She further noted that the adoption of the "Measures on Improvement of the Tariff Policy for Natural Monopolies for the period 2008-2010", approved by Government Resolution No. 1279 of 24 December 2007, had demonstrated the Government's effort to ensure the sustainable operation of natural monopolies.  Measures were aimed at improving the legal and regulatory framework, and the methodology for establishing tariffs, including the introduction of forward‑looking methods. 

151.  The representative of Kazakhstan noted that the production of electric power, natural gas and gas condensate, as well as other forms of energy, was not regulated as a natural monopoly.  She added that Law No. 166-III "On Amendments and Addenda to Certain Legislative Acts on Issues of Natural Monopolies" of 5 July 2006 had introduced the concept of "strategic goods" that included:  coal, gas, mazut, diesel fuel, and electric power used by natural monopolies.  The provisions of the Law required that a natural monopoly / consumer had to purchase those strategic goods directly from producers or direct importers, except in cases where supply shortages existed in a particular market.  This requirement had been introduced as a result of the fact that the fuel cost had reached 70% of the expenses of natural monopolies due to the large number of intermediaries in the supply chain from producer to natural monopoly / consumer.  In reply to a question, she noted that the term "strategic object" was not related to the term "strategic good".  The term "strategic object" was used for regulation of certain infrastructural assets important for protecting the national integrity of Kazakhstan's economy whereas the term "strategic good" was used for the purpose of tariff regulation of natural monopolies.

152.  In reply to the question from a Member regarding the regulation of energy prices, especially gas prices, the representative of Kazakhstan stated that, according to Law No. 532‑IV "On Gas and Gas Supply" of 9 January 2012, her Government had established maximum wholesale prices for commercial and liquefied petroleum gas on the domestic market, based on the proposal of the Ministry of Energy.  In accordance with Law "On Natural Monopolies", retail prices for gas charged by market participants with dominant or monopolistic position on the relevant market were regulated by the Committee.  Companies with dominant or monopolistic position had to submit to the Committee notification on the proposed price increases for gas, along with the relevant justification materials.  The proposed price was subject to the approval by the Committee based on the results of the price appraisal conducted in accordance with Article 7-2 of Law "On Natural Monopolies", which regulated price setting in regulated markets, as described in paragraph 147.  Retail prices for petroleum products were regulated in accordance with Law No. 463‑IV "On State Regulation of Production and Turnover of Certain Types of Petroleum Products" of 20 July 2011.  The Committee in coordination with the Ministry of Energy approved maximum retail prices for petroleum products in accordance with the procedures established by Government Resolution No. 287 of 2 March 2012.  The list of regulated petroleum products was approved by Government Resolution No. 286 of 2 March 2012, which included the following types of oil products:  Ai-80, Ai 92 and Ai 93 gasoline brands, summer and inter-seasonal diesel fuel.  These measures had been introduced in order to prevent unfair price increases on utility services provided to households and stabilize the situation on the domestic market of petroleum and gas products, in particular to curb high inflation in the country.  She added that the Government regulated prices of petroleum products and gas used by households as part of social policy aimed at stabilization of retail prices for socially important products.

153.  Asked whether the Government had an authority to apply price controls on goods and whether such controls existed, the representative of Kazakhstan replied that, in principle, in accordance with Article 9.7 of Constitutional Law No. 2688 "On the Government of the Republic of Kazakhstan" of 18 December 1995, the Government had the authority to develop and implement the State pricing policy, as well as to set the prices of goods and services.  At the moment, the Government set prices for the following goods:  (i) minimum retail prices for vodka, special vodka and other hard liquors (Law No. 429-I "On State Regulation of Production and Turnover of Ethyl Spirits and Alcohol Products" of 16 July 1999 and Government Resolution No. 1592 "On Establishing Minimum Prices for Alcohol Products" of 23 October 1999, as amended in February 2011); (ii) minimum retail prices for filter cigarettes of length between 45mm and 85 mm, and of length between 87.1 mm and 160 mm (Law No. 439-II "On State Regulation of Production and Turnover of Tobacco Products" of 12 June 2003 and Government Resolution No. 260 "On Establishing Minimum Retail Prices for Filter Cigarettes" of 4 April 2007); (iii) maximum retail prices for petroleum products (Law No. 463-IV "On State Regulation of Production and Turnover of Certain Types of Petroleum Products" of 20 July 2011); and (iv) maximum wholesale prices for liquefied petroleum gas on the domestic market (Law No. 532-IV "On Gas and Gas Supply" of 9 January 2012 and Government Resolution No. 1272 "On Establishing Maximum Wholesale Price for Liquefied Petroleum Gas on the Internal Market" of 8 October 2012).  Price setting applied only to internal sale, and had not been applied in a discriminatory manner between domestically produced and imported products.  These measures were introduced as part of public health and social stability policies. 

154.  Concerning the provision of electric power supply services, the representative of Kazakhstan said that by Government Resolution No. 190 of 18 February 2004 the "Concept of Further Development of Market Relations in the Electric Power Industry in the Republic of Kazakhstan" had been approved.  She added that Law No. 588-II "On Power Industry" had been adopted on 9 July 2004.  In accordance with the provisions of this legislation, electric power supply services (on the retail market for electricity) had been transferred to the competitive market where electricity suppliers set tariffs for final consumers on the basis of market principles.  Power supply companies with a dominant (monopolistic) position had been registered at the Committee.  Other new developments included the use of centralized bidding for electric power procurement for sale to retail customers; the separation of heating networks from generation plants; and the creation of a level playing field for the supply of electric power with the purpose to promote competition between national-level electric power stations and regional producers of electric power.  Transmission and distribution of electricity by inter-regional networks (via National Company "KEGOC") was considered to be an activity within the sphere of natural monopolies, and therefore subject to State price regulation.  The methodology of setting tariffs for electric power transmission services had been amended to remove the direct dependence of tariffs rates on the distance of power transmission.  An energy deficiency and network capacity coefficient had instead been introduced.  She noted that the provisions of the new legislation allowed for an easy access to the wholesale market for electricity. 

155.  With regard to the regime governing natural gas, a Member enquired whether foreign companies in Kazakhstan benefited from the same prices as Kazakhstan's companies, and whether prices charged for domestic consumers were the same as for export.  In addition, this Member asked Kazakhstan to confirm that prices of energy products (notably oil and gas) in Kazakhstan covered at least all costs of extraction, production, transport and marketing of those products, an appropriate contribution to fixed costs and financing charges plus a reasonable profit margin, sufficient to remunerate current fixed and capital investments associated with those products and secure future ones, including maintenance and upgrade of infrastructure and in the exploration and development of new fields done or planned. 

156.  In reply, the representative of Kazakhstan said that, at present, her Government regulated the prices of gas, in particular the wholesale domestic prices for liquefied petroleum gas (as indicated in paragraphs 152 and 153), and retail domestic prices for petroleum products and retail prices for gas charged by market participants with dominant or monopolistic position on the relevant market (as indicated in paragraph 152).  Except for these limitations, gas and crude oil produced in and exported from Kazakhstan were sold at market-based prices.  Transportation of gas via pipelines for domestic consumption and crude oil via main pipelines was subject to regulation as natural monopolies.  The regulated tariffs for transportation of gas and oil were based on the "cost plus reasonable profit" principle.  Tariffs for transportation of gas for export via pipelines were not regulated by the Government. 

157.  With regard to the regime governing oil, some Members requested more information on the natural monopolies operating in the oil (and gas) pipeline industry and on the procedures set by natural monopolies to access oil pipelines.  These Members enquired what criteria were used to provide access to pipelines and whether any form of guidance was provided by the Government with respect to the provision of access. 

158.  The representative of Kazakhstan replied that the procedure for providing consumers with equal access to regulated services / goods / works of natural monopolies was contained in the "Rules For Granting Equal Access to Regulated Services (Goods, Works) in Oil and/or Oil Products Transportation Via Main Pipelines" (Order of the Chairman of the Agency on Regulation of Natural Monopolies No. 107 of 19 January 2005).  At the moment, Kazakhstan's oil was exported via three pipelines:  (i) "Uzen–Atyrau (Kazakhstan)–Samara (Russia)" owned by "KazTransOil"; (ii) "Tengiz-Novorossiysk" owned by the Caspian Pipeline Consortium (CPC); and, (iii) "Kenkiyak‑Alashangkou" owned by "Kazakhstan-China Pipeline".  The volume of oil exports via the "Uzen-Atyrau-Samara" pipeline was determined by its traffic capacity and was based on the annual inter-governmental agreement between the Russian Federation and Kazakhstan. 

159.  The Ministry of Energy allocated available transportation quotas for exports of crude oil via the  "Uzen–Atyrau–Samara" pipeline among Kazakhstan's companies producing crude oil proportionally to the volume of their production depending on the available transport capacities of the main pipeline in Kazakhstan and transit capacity provided by the Russian Federation.  Applications from the producers had to indicate the production volume and destination for the transportation of crude oil.  Once the quota volume was agreed, the exporter had to sign an Oil Transportation Agreement with the main pipeline operator – "KazTransOil".  In negotiations on the annual transit quotas with the Russian Federation, the Government of Kazakhstan took into account the forecasted needs for crude oil transportation of all Kazakhstan's companies.  To date, all requests for transportation of crude oil had been met and there had been no shortage of quotas.  Thus, quotas were allocated to both domestic and foreign invested companies producing crude oil in Kazakhstan on a non-discriminatory basis. 

160.  A Member asked if there was an official double pricing policy in any sector and a double pricing regime in practice as a result of Government measures.  In reply, the representative of Kazakhstan stated that Kazakhstan's legislation did not provide for double pricing policy.  Different tariffs charged for transportation of goods in different directions were explained by the differences in costs incurred by natural monopolies when rendering their services.  According to Law "On Natural Monopolies ", when establishing tariffs of natural monopolies, the Committee took into account all costs incurred by the entity and the reasonable profit, which could ensure efficient functioning of the operator.

161.  Some Members noted that, although a priori tariff rates for transport of oil by pipeline were the same for domestic consumption and export, the application of a decreasing (discount) coefficient for domestic consumption resulted in a higher de facto rate for transportation of oil for export destination.  These Members noted that Article XI of the GATT 1994 provided that "other measures" could not be used to prohibit or restrict the exportation or sale for export of any product destined for the territory of another Member.  These Members stated that Kazakhstan was expected to eliminate the discriminatory pricing applicable to oil destined for export prior to its WTO accession. 

162.  The representative of Kazakhstan replied that Kazakhstan had discontinued the practice of application of decreasing coefficients for transportation of crude oil to domestic refineries in 2010.  Instead, the tariffs for transportation of crude oil by mainline pipelines for export and domestic destinations were calculated separately based on actual costs, reasonable profits and the physical capacity of pipelines.  Such an approach was necessary to ensure transparency in the accounting of revenues, costs and operational assets in regulated services, as well as transparency in the elaboration of tariff estimates, and the tariff calculation for regulated services delivered by natural monopolies. 

163.  Some Members also noted that the differential oil transport fees applied by Kazakhstan were in conflict with the provisions of Article V of the GATT 1994 on freedom of transit.  In response, the representative of Kazakhstan said that there was no discriminatory treatment with respect to transit routes in Kazakhstan.  As of 2004, oil transit from the Russian Federation to the People's Republic of China through Kazakhstan had been conducted by the "Omsk‑Pavlodar‑Atasu" pipeline, the only transit pipeline of crude oil via Kazakhstan.  The transit tariffs were regulated by the Agreement between the Government of Kazakhstan and the Government of the Russian Federation on Transit of Crude Oil of 7 June 2002, as amended in November 2009.

164.  The representative of Kazakhstan said that the scope of services monopolization in the railway services market, subject to State regulation as natural monopoly, had been reduced due to the restructuring of the railway transport sector which had begun in 2004.  As a result of these reforms, currently only the services of mainline railway networks were regulated by the State as natural monopoly.  Different tariffs for railway transportation were set depending on distance, rolling stock (wagons) type, cargo and destination.  In her view, the application of these differential tariffs did not contradict WTO requirements.  She noted that, in the context of the restructuring of the railway transportation sector between 2006 and 2013, her Government had undertaken a gradual unification of tariffs charged for the mainline railway services in domestic, export and import routes.  During the first stage, in 2006, tariffs for transportation of construction materials, ferrous and non-ferrous metals and their scrap had been unified.  During the second stage, in 2010, tariffs for transportation of crude oil and coal had also been unified.  During the third stage, in 2011, the unification of tariffs had continued with respect to non-ferrous ore, iron ore, alcohol and alcoholic beverages.  The unification of tariffs had been completed during the fourth stage in 2012 for all remaining goods, including chemical and mineral fertilizers, chemicals and sodium bicarbonate, petroleum products and grain. 

165.  A Member noted that Kazakhstan's authorities had a very large discretionary margin to qualify activities as natural monopolies, and said that this Member did not consider, for instance, telecommunications and postal services to be natural monopolies.  Another Member asked Kazakhstan to explain how there was competition in the markets dominated by natural monopolies. 

166.  In response, the representative of Kazakhstan reiterated that, as evidenced by the description of ongoing reforms in key sectors of the economy, her Government was pursuing liberalization programmes in order to facilitate competition and reduce the list of natural monopolies.  In particular, her Government had reduced the types of regulated postal services.  The list had originally included eight types of postal services but had subsequently been reduced to only universal postal services (cards, letters, packages and postal wrapper).  Regarding telecommunication services, she said that the scope of services subject to Government regulation as natural monopoly had been reduced and currently included only:  (i) telecommunication services under conditions of absence of competing operators for reasons of technological infeasibility or commercial inexpediency; and, (ii) leasing or use of cable channels and other basic facilities technologically related to connecting telecommunication.  In addition, operator connection services (to the services of the universal telecommunication network) and telephone transit services would remain regulated and would only be excluded from the list of natural monopolies after the development of a competitive environment. 

167.  Some Members stated that enterprises that had a monopoly position in international trade and/or domestic distribution should be notified under the Understanding on the Interpretation of Article XVII of the GATT 1994, and enquired whether Kazakhstan intended to notify any of its "natural" monopolies.  A Member said that there was ample evidence that State-owned natural monopolies in Kazakhstan did not grant equal access, as transporters, and enjoyed extensive special privileges. 

168.  The representative of Kazakhstan replied that natural monopolies in Kazakhstan acted as transport carriers with equal non-discriminatory (open) access for all suppliers and operators, regardless of the form and type of ownership.  In this respect, she pointed to Article 2 of Law No. 266-II "On Railway Transport" of 8 December 2001, which stipulated the principle of non‑discriminatory access to railway transport services for all participants of transport market.  The "Rules of Non‑Discriminatory Access for Carriers to the Services of the Mainline Railway" approved by Order of the Minister of Transport and Communications No. 401-I of 8 November 2004, had been repealed in October 2012.  In her view, no exclusive rights or special privileges were granted to natural monopolies and, therefore, natural monopolies did not fall under the notification requirements of the Understanding on the Interpretation of Article XVII of the GATT 1994.

169.  A Member asked Kazakhstan to confirm that, upon accession, the Government of Kazakhstan would, in regulating prices, ensure that State-owned enterprises and natural monopolies in Kazakhstan, in respect of their supplies of goods to industrial users, would recover their costs, including a reasonable profit in the ordinary course of their business.  Kazakhstan was also asked to confirm that the application of price controls on goods and services would be in a manner consistent with WTO obligations, including Article III:9 of the GATT 1994, and that price controls would not be used for purposes of affording protection to domestic industries or service providers. 

170.  The representative of Kazakhstan confirmed that, from the date of accession, Kazakhstan would apply price controls on products and services contained in Annex 4 of this Report, and any similar measures that would be introduced or re-introduced in the future, in a manner consistent with the WTO Agreement.  She further confirmed that price control measures on goods would take account of the interests of exporting Members, as provided for in Article III:9 of the General Agreement on Tariffs and Trade 1994.  Price control measures would not be used for purposes of affording protection to domestic production of goods, or to impair the services commitments of Kazakhstan.  The representative of Kazakhstan also confirmed that the lists of goods and services subject to State price controls in Annex 4 of this Report were comprehensive, and that, from the date of accession, Kazakhstan would publish in the Yegemen Kazakhstan and the Kazakhstanskaya Pravda, notice of any changes in the coverage of goods or services that were subject to price controls.  The Working Party took note of these commitments.

-       Competition Policy

171.  The representative of Kazakhstan stated that the legal basis for the competition policy within the EAEU was Section XVIII "Common Principles and Rules of Competition" (Articles 74-77) and Annex No. 19 "Protocol on Common Principles and Rules of Competition" of the EAEU Treaty.  These provisions replaced the Agreement on Common Principles and Rules of Competition of 9 December 2010, which was terminated when the EAEU Treaty came into effect on 1 January 2015.  From 1 January 2015, Section XVIII and Annex No. 19 of the EAEU Treaty were aimed at development of common principles and rules of competition, ensuring prevention of anticompetitive actions on the territories of the EAEU member States, and actions that might have negative impact on competition in trans-boundary markets.

172.  The Eurasian Economic Commission (hereinafter: EEC or Commission) had the competence to prevent violations of common rules of competition by market participants, natural persons and non‑commercial organizations of the EAEU member States if such violations affected or might have affected competition in trans-boundary markets, except for violations, affecting competition in trans-boundary financial markets, prevention of which was performed in accordance with the national legislation of the member States.

173.  The Commission had the competence to: 

(i)         review applications (materials) on existence of signs of violations of common rules of competition, which affected or might have affected competition on trans-boundary markets, and carry out necessary investigations;

(ii)        initiate and consider cases on  violation of common rules of competition, which affected or might have affected competition on trans-boundary markets, on the basis of the appeals by the competent authorities of the member States, economic operators (market participants) of the member States, state bodies of the member States, natural persons or on its own initiative;

(iii)       make determinations and adopt decisions binding for economic operators (market participants), including on application of penalties to economic operators  (market participants), regarding actions aimed at termination of violations of common competition rules; elimination of consequences of violations of common competition rules; ensuring competition; prevention of actions which might have hindered establishment of competition and/or might result in restriction, elimination of competition on trans-boundary markets and violations of common rules of competition;

(iv)       request information from competent authorities of the member States, local executive bodies, other bodies or organizations carrying out their functions, natural and juridical persons, including confidential information necessary to fulfill competence to control over compliance with common competition rules on trans-boundary markets;  and,

(v)       undertake other functions, necessary to implement the common competition rules established by Section XVIII and Annex No. 19 of the EAEU Treaty.

174.  She further added that anti-monopoly legislation of Kazakhstan was developed in line with the Constitution of the Republic of Kazakhstan and comprised, inter alia, of the relevant provisions of the Civil Code, Code No.155-III "On Administrative Offences" of 30 January 2001 (hereinafter: Code of Administrative Offences), and Law No. 112-IV "On Competition" of 25 December 2008 (hereinafter: Law "On Competition"), that had entered into force on 1 January 2009.  This Law replaced Law No. 173-III "On Competition and Restriction of Monopolistic Activities" of 7 July 2006 and Law No. 232-I "On Unfair Competition" of 9 June 1998.  Law "On Competition" was last amended by Law No. 81-V of 6 March 2013.    

175.  The key objective of Law "On Competition" was protection of free competition and creation of a favorable environment for entrepreneurial and investment activities, and growth of businesses.  This was to be achieved through:  (i) prevention of monopolistic activities; (ii) prevention of unfair competition; (iii) de-monopolization of industries; (iv) development of fair and free competition; and, (v) protection of consumer interests.  Law "On Competition" was directly applicable and did not contain references to by-laws. 

176.  The Committee on Regulation of Natural Monopolies and Protection of Competition of the Ministry of National Economy (hereinafter in this Section: Committee) was responsible for implementation of the national policy aimed at developing competition and restricting monopolistic activities.  The main functions of the Committee were:  (i) to promote development of fair competition; (ii) to prevent, detect and investigate violations of the anti‑monopoly legislation of Kazakhstan; (iii) to control economic concentration; and, (iv) de-monopolization of market participants that restrained competition.  The development of State policy on competition and restriction of monopolistic activities was one of the key functions of the Ministry of National Economy. 

177.  Asked about measures taken in the framework of de-monopolization, the representative of Kazakhstan explained that the decisions on de-monopolization of sectors of the economy were made by the Government based on results of the commodity markets analysis conducted by the Committee.  For instance, in 2011, the Committee conducted the analysis of interconnection and traffic transmission (interconnection) in telecommunication services.  Based on the results of the analysis, the Government took the decision to exclude interconnection services from the sphere of natural monopolies and transfer to competitive environment.  Moreover, within the framework of de-monopolization policies, Law "On Competition" stipulated rules, under which State enterprises and juridical persons and their affiliates, where the Government owned 50% or more shares, had to receive the positive conclusion from the Committee for further activities in the relevant commodity market.  In 2011, 3% of such enterprises were transferred to competitive environment (including enterprises in such spheres as maintenance of hotels and resorts, maintenance of car parks, construction, etc.).

178.  Asked about merger control regulation, the representative of Kazakhstan said that according to sub-paragraph 1, paragraph 1 of Article 50 of Law "On Competition", regulating issues related to control over economic concentration, merger transactions fell under the notion of economic concentration.  Articles 49-57 of Law "On Competition" regulated issues of economic concentration control.  The Committee conducted control over economic concentration via an approval procedure of merger transactions (actions).  In reply to a specific question on current merger thresholds to trigger the obligation for notification in Kazakhstan, the representative of Kazakhstan stated that consent of the Committee to perform transactions, acknowledged as economic concentration, was required in the following cases:  (i) merger or acquisition of a market participant; (ii) acquisition by a person / group of persons of more than 25% of the voting shares (right of participation) of a market participant, if previously this person / group of persons had not held the shares (right of participation) of a market participant, or its portion was less than 25%; and, (iii) obtaining ownership, including in payment of the charter capital by a market participant (group of persons) of the main industrial assets and/or intangible assets of a market participant, if the balance value of the property subject to the transaction exceeded 10% of the balance value of the main industrial and intangible assets.  Consent for economic concentration with participation of financial organizations could be given in case when the value of assets or amount of equity capital of a financial organization exceeded the amount jointly established by the Committee and the National Bank of Kazakhstan for financial organizations.  Market participants had to notify the Committee in the following cases of economic concentration:  (i) acquisition of rights (including rights on the basis of trust management agreement and joint activity agreement) by the market participant allowing him/her to give mandatory instructions to other market participant when conducting commercial activities or to perform functions of its executive body; and, (ii) participation of the same natural persons in executive bodies, boards of directors, supervisory boards, and other managing bodies of two or more market participants if these natural persons determine conditions of commercial activities conducted by the market participant.  In accordance with paragraph 3 Article 50 of  Law "On Competition", the consent and notification mentioned above were required if the aggregate balance value of assets of reorganized market participants (group of persons) or the acquirer (group of persons), and also market participant whose voting shares (rights of participation) in the charter capital had been acquired, or their aggregate volume of goods sold for the last financial year exceeded 10 million Monthly Calculation Index[13], or one of the persons participating in the transaction was a market participant with dominant or monopolistic position on the relevant goods market.  The consent of the Committee was not required for the following cases, not considered as economic concentration:  (i) acquisition of shares (rights of participation) of the market participant by financial organizations, if this acquisition was conducted with the aim of further resale, with the condition that this financial organization did not have voting rights in the managing bodies of the market participant; (ii) acquisition by financial organizations of property, main production assets and/or intangible assets of another market participant with the aim of repayment of the debtor's liability fully or in part, if this acquisition was conducted with the aim of further resale, with the condition that these financial organizations did not use such property to gain profit in their own interest; (iii) appointment of rehabilitation or bankruptcy manager, temporary administration (temporary administrator); and, (iv) economic concentration within one group of persons.

179.  Asked about the test for a merger to be prohibited, the representative of Kazakhstan said that, according to Law "On Competition", a general rule was that all mergers leading to restriction of competition were prohibited.   

180.  Consent of the Committee could be granted provided that the participants of the economic concentration fulfilled certain requirements and commitments eliminating or alleviating the negative impact on competition.  For instance, economic concentration should not result in the following:

-       restriction of competition;

-       breach of the conditions contracted with customers;

-       suspension of services being rendered;

-       deterioration of quality of the services rendered;

-           non-fulfilment of the commitments under the investment contracts concluded with the Ministry of Investments and Development; and,

-       unreasonable reduction of production or sales.

181.          Such conditions could include restriction in management, use or disposal of property.  The Committee, on its own initiative or upon the application of an interested person, could change its decision on economic concentration in cases when:

-           within three years upon its adoption, the circumstances giving reasons to reject it were revealed;

-           it was adopted on the basis of unreliable information, which led to the adoption of an illegal decision; and,

-       requirements and undertaken commitments were not fulfiled. 

182.  The representative of Kazakhstan added that Law "On Competition" distinguished three types of monopolistic activities:  (i) anti-competitive agreements; (ii) anti-competitive coordinated actions; and, (iii) abuse of dominant or monopolistic position.  The representative of Kazakhstan noted that agreements or coordinated actions between competing and non-competing market participants, as well as agreements of State and local executive bodies, or between State bodies and market participants, were prohibited when they restricted competition or violated the rights of natural and juridical persons, including by establishing and/or maintaining cooperative pricing or other conditions of acquiring and selling goods, unreasonable limitation of production or sale of goods, unreasonable refusal to conclude contracts with certain sellers (providers) or buyers, and application of discriminating conditions to equivalent contracts with other market participants.  She further explained that Law "On Competition" differentiated between "anti-competitive coordinated actions" and "anti-competitive agreements".  The difference between anti-competitive agreements and anti‑competitive coordinated actions was that anti-competitive agreements provided for intended written arrangement between market participants to conclude anti-competitive agreements, for example, agreements on sale of products at the same price or within certain territory. 

183.  The representative of Kazakhstan noted that Law "On Competition" redefined the term "group of persons".  Abuse of dominant or monopolistic position by a group of persons was considered as abuse by a single market participant.  Market participants were not obliged to seek for approval of economic concentration in cases when transactions were made within one group of persons.  Law "On Competition" also contained new definitions of what constituted dominant and monopolistic positions.  The position of a market participant(s) in the relevant commodity market was recognised as dominant or monopolistic if such market participant(s) acquired a capability to control the market.  A market participant was deemed to have a dominant position if it had a share of 35% or more of the relevant market.  Several market participants were considered to have a dominant position (i) if the aggregate share of up to three market participants in a given commodity market was equal or exceeded 50%; or, (ii) if the aggregate share of up to four major market participants in a given commodity market was equal to or exceeded 70%.  A financial organization was deemed to have a dominant position (i) if the aggregate share of up to two financial organizations in a given financial services market was equal to or exceeded 50%; or, (ii) if the aggregate share of up to three financial organizations in a given financial services market equalled or exceeded 70%.  A company with less than a 15% share of the market, including a financial services market, could not qualify as a company with a dominant position.  Natural monopolies, state monopolies and market participants that owned 100% dominant share in the relevant commodity market were considered as companies (market participants) with a monopolistic position.

184.          Asked to clarify the differences between the concepts of dominant or monopolistic position and monopolistic activity, the representative of Kazakhstan replied that the concept of monopolistic activity was wider than the concept of dominant or monopolistic position.  Monopolistic activity was an activity or actions performed by a market participant, while dominant or monopolistic position was a characteristic of a market participant, defined by the market share.  According to paragraph 4 of Article 26 of the Constitution of the Republic of Kazakhstan, monopolistic activity was regulated by the law.  Market participants with dominant or monopolistic position had to observe restrictions set-out in Law "On Competition".  Hence, monopolistic activity was restricted, but not prohibited.  Types of monopolistic activities restricted by Law "On Competition" are described in paragraph 182

185.          In reply to a specific question, the representative of Kazakhstan stated that the dominant or monopolistic position itself was not considered breach of the anti-monopoly legislation.  Article 13 of Law "On Competition" listed prohibited cases of abuse of dominant or monopolistic position:

-           establishment and maintenance of monopolistically high/low or monopsonistically low prices;

-           application of different prices or conditions to equivalent agreements with market participants or customers without objectively justified reasons;

-           establishing restrictions for distribution of goods / works / services based on territorial factors, group of customers, purchasing conditions, and also quality and price;

-           preconditioning or imposing a conclusion of an agreement where a market participant or a customer would accept additional obligations which, in their essence or according to customary business practice, were not related to the subject of such agreement;

-           unreasonable refusal to conclude an agreement with or sell goods / works / services to independent customers while having the ability to produce (or sell) goods / works / services.  This also included avoidance from concluding such an agreement within thirty calendar days of a request;

-           preconditioning supply of goods / works / services to accept restrictions for purchasing goods / works / services, produced or sold by competitors;

-           unjustified reduction of volumes of production and/or supply, including production and/or supply of goods / works / services, for which there was demand or customer orders;

-           withdrawal of goods / works / services from circulation, if it resulted in price increase;

-           imposition of economically or technologically unjustified agreement terms on a partner, not connected with the subject of the agreement;

-           creation of obstacles for other market participants to enter or exit from a goods / works / services market; and,

-           unjustified establishment of different prices / tariffs on the same goods / works / services, creating discriminating conditions. 

In addition, Kazakhstan's legislation did not provide penalty for dominant or monopolistic position itself, but only for abuse and actions to restrict competition.

186.          In reply to the question of a Member regarding economic indicators taken into account for identification of market participants with dominant or monopolistic position, the representative of Kazakhstan noted that in accordance with the "Methodology on Analysis and Assessment of the Competitive Environment in the Commodity Market", approved by Order of the Chairman of the Antimonopoly Agency No. 8-OD of 12 January 2009, and the "Methodology on Analysis and Assessment of the Competitive Environment in the Financial Services Market", approved by Order of the Chairman of the Antimonopoly Agency No. 57-OD of 19 February 2009, the Committee conducted analysis of the competition environment.  The results of the analysis provided the picture of development of competition in the given market and identified market participants with dominant or monopolistic position.  The methodology of analysis included the following steps:  (i) identification of goods or substitute goods; (ii) identification of geographical boundaries of the commodity market; (iii) identification of time intervals; (iv) identification of structure of the market; (v) calculation of commodity market volume and shares of market participants in the market; (vi) assessment of competitive environment in the commodity market; and, (vii) detection of entry barriers to the commodity market.  Based on these factors the Committee drew its findings on the competition environment.

187.  Law "On Competition" expanded the list of types of unfair competition which included the following:  (i) illegal use of trademarks and packaging; (ii) illegal use of a product of another manufacturer; (iii) copying product design; (iv) discrediting a market participant; (v) deliberately misleading, unfair and false advertisement; (vi) tie-in sale of goods; (vii) calling for a boycott of a seller / provider; (viii) calling for discrimination against a buyer / supplier; (ix) calling for a market participant to terminate a contract with a competitor; (x) bribing a seller's (provider's) employee; (xi) bribing a buyer's employee; (xii) illegal use of trade secrets; (xiii) selling goods while providing the customer with unreliable information regarding the character, method and place of production, consumer properties, the goods' qualities and quantities and/or its producers; and, (xiv) improper comparison by the market participant of its goods with the goods produced and/or sold by other market participants. 

188.          The State could participate in commercial activity in the following cases:  (i) failure to ensure national security, national defence capability and protection of the social interests by other means; (ii) use of State-owned strategic objects; and, (iii) public need in public manufacturing of goods where competition was absent or underdeveloped.  In the last case, the activities of public enterprises were regulated in coordination with the Committee.  The State could participate in commercial activities in the form of the following types of enterprises:  (a) a State enterprise, or, (b) a juridical person 50% or more shares (rights of participation) of which belonged to the State and its affiliated entities.  State enterprises could engage only in the spheres stipulated in Article 134 of Law No. 413-IV "On State Property" of 1 March 2011 (see Annex 3(F) of this Report).  If establishment of such enterprises was not directly mentioned in the laws of Kazakhstan, consent of the Committee was required in the cases mentioned in clause (iii) above.  The Committee could deny creation of a State enterprise or a juridical person by the State, if such creation could lead to restriction of competition on the market where there was no competition or it was underdeveloped.  Nevertheless, the Committee could grant its consent if a State enterprise or a juridical person undertook special commitments to eliminate or alleviate negative impact on competition. 

189.          Law "On Competition" also introduced the term "state monopoly" as the exclusive right of the State to produce and/or sell, purchase or use goods.  The State had the right to restrict competition by establishing a State monopoly only in those spheres where sale of goods on the competitive market could have negative consequences for the constitutional system, national security, protection of public order, human rights and freedoms, or health of people.  The representative of Kazakhstan added that a State monopoly could be established only by law.  State monopolies could be established only in the form of State enterprises by the decision of the Government or local executive bodies.  In reply to a specific question, she said that the notion of "state monopoly" differed from the notion of "natural monopoly". 

190.          State monopoly activities were defined in Law No. 85-II "On Safeguarding Activity" of 19 October 2000, Law No. 339-II "On Veterinary" of 10 July 2002, Law No. 456-I "On Trademarks, Service Marks and Appellations of Origin of Goods" of 26 July 1999, Law No. 422-I "On Protection of Selective Achievements" of 13 July 1999, Law No. 331-II "On Plant Protection" of 3 July 2002, Law No. 593-II "On Protection, Reproduction and Use of Fauna" of 9 July 2004, Law No. 427-I "Patent Law of the Republic of Kazakhstan" of 16 July 1999, as well as Land Code of the Republic of Kazakhstan No. 442-II of 20 June 2003 and Forestry Code of the Republic of Kazakhstan No. 477-II of 8 July 2003.  The Committee was responsible for regulation and monitoring activities of State monopolies.  At present, State monopolies provided special types of services, including:  hydrometeorological monitoring and monitoring of the environmental situation; liquidation of centres of extra hazardous contagious animal diseases; security services for facilities subject to the State protection; production of identification documents of the Republic of Kazakhstan; monitoring of education quality, etc.  Kazakhstan's legislation did not prohibit private sector participation in sectors where State enterprises were present, except in the spheres of State monopoly.  She explained that Law No. 34-V "On Amendments and Addenda to Certain Legislative Acts on Issues of State Monopoly" of 10 July 2012 provided for the reduction of State monopoly  spheres by inviting the private businesses to certain sectors.  According to this Law, activities transferred to the competitive market included certification and registration of selective-seed and selective‑genetic facilities located on the territory of the State Forest Fund, disposal of waste, construction and operation of landfills, and accreditation in the sphere of conformity assessment.

191.          In reply to a specific question on the scope of exemption for State monopolies, the representative of Kazakhstan said that the scope of activities of State monopolies was narrower than the sphere of activities of State enterprises engaged in commercial activity.  The types of State monopoly activities were defined in special legal acts, which clearly stipulated the types and scopes of their activities.  State monopolies were not allowed to:

-           produce goods / works / services, not connected with the State monopoly sphere;

-           hold shares (rights of participation in the charter capital) and participate otherwise in activities of juridical persons;

-           transfer rights associated with State monopoly; and

-           establish prices for produced or sold goods / works / services, different from those established by the Government.

192.          The Committee initiated investigations upon receiving information on violations of anti-monopoly legislation such as:  (i) files/documents from the Government bodies; (ii) application from a natural or juridical person; (iii) detection by the Committee of anti-monopoly legislation violations; (iv) appeal to the Committee by the mass media; and (v) information in the mass media.  The Committee within its competencies conducted investigations on violations of anti‑monopoly legislation and adopted a decision based on its results.  Investigation was conducted within two months from the date of issuing an order of its initiation.  This term could be extended for up to two months.

193.          The representative of Kazakhstan added that the Committee took one of the following decisions on the basis of investigation results to:  (i) suspend an investigation in cases envisaged by Law "On Competition"; (ii) initiate administrative proceedings; (iii) adopt instructions on elimination of the anti‑monopoly legislation violations; or, (iv) initiate criminal proceedings by the law enforcement bodies.

194.          She informed Members that Article 147 of Code of "Administrative Offences" provided the following sanctions for violations of the anti-monopoly legislation:  a fine in the amount of 150 Monthly Calculation  Index (MCI) for individual entrepreneurs, 5% of receipts from the monopolistic activity for small and medium-sized businesses, and 10% of receipts from the monopolistic activity for other businesses.  Article 196 of the Criminal Code provided for criminal liability for actions causing severe damage, including fines of 500 to 1,000 MCI, or up to two years of correctional labour, custodial restraint, or imprisonment.  For repeated offences, or for actions committed by (organized) groups or officials, the sanctions consisted of fines in the amount of 1,000 to 2,000 MCI, or the equivalent of five to seven months' salary or other income of the convicted person, or imprisonment for up to five years that could be accompanied by deprivation of the right to hold specific posts or engage in certain activities for up to three years, and property expropriation.  Offences committed with the use of force or the threat to use force or which could lead to damage, or threat of damage of third party's property, were punishable by three to seven years of imprisonment that could be accompanied by property expropriation.

195.  The representative of Kazakhstan added that Chapters 9, 10 and 11 of Law "On Competition", defined responsibilities for violation of the anti-monopoly legislation and established procedures for adoption, appeal, and execution of instructions and decisions taken by the Committee.  The Committee had the right to review administrative violations regarding competition protection and restriction of monopolistic activity, impose administrative sanctions provided in Code of "Administrative Offences" and appeal to the courts for enforcement of its instructions and decisions.  Law "On Competition" did not provide for introduction of fixed prices by the Government in case of repeated abuses by market dominating entities of their monopolistic positions.  In a case in which a market participant that had a dominant or monopolistic position and violated twice within one calendar year the provisions of Law No. 112-IV on (i) "anti-competitive agreements"; (ii) "anti‑competitive coordinated actions"; and, (iii) abuse of dominant or monopolistic position; and continued taking actions that restrained competition, the Committee had the right to appeal to the court seeking the splitting of the market participant into several juridical persons or the detachment of one or several juridical persons from the market participant.  The instructions and decisions of the Committee could be appealed in accordance with the legislation of the Republic of Kazakhstan.  The instructions of the territorial bodies of the Committee could be appealed to the Committee or directly to the courts within three months of the date of handling of an appeal to the entity concerned

III.  FRAMEWORK FOR MAKING AND ENFORCING POLICIES

-       Powers of Executive, Legislative and Judicial Branches of Government

196.  The representative of Kazakhstan stated that the Republic of Kazakhstan was a unitary State with a Presidential form of Government.  Power was divided among the legislative, executive and judicial branches.  The President ensured the coordinated functioning of all branches of power.  The Parliament of the Republic of Kazakhstan was the highest representative body and performed legislative functions.  The Government exercised executive power, headed the executive bodies and provided guidance to them.  Judicial power was exercised through civil, criminal and other statutory forms of judicial proceedings by the Supreme Court, local courts and other courts.

197.  The President was elected for five year terms on the basis of universal, equal and direct suffrage by secret ballot.  The President appointed and could dismiss the members of the Government (including the Prime Minister, the Ministers of Foreign Affairs, Defence, Internal Affairs and Justice, and the Heads of State Committees), the Heads of diplomatic missions, higher Officers of the Armed Forces, the Chairperson and two members of the Constitutional Council, the Chairperson and two members of the Central Election Committee, the Chairperson and two members of the Accounting Committee for Control Over the Implementation of the Republican Budget, 15 Deputies of the Senate, chairpersons and judges of local and other courts, the Prosecutor General, the Chairperson of the National Security Committee, the State Secretary, the Chairperson of the National Bank, and Akims.

198.  The President approved laws submitted by the Senate (the upper house of the Parliament) within one month, or returned laws with his comments to the Parliament for consideration, to be reviewed within one month.  If the specified deadline was not met, the President's objection would prevail and the law was adopted in the version proposed by the President.  If the Parliament overturned the President's objection by a two-thirds majority vote of each Chamber, the law was adopted in the version initially proposed by the Parliament.  In cases where the Parliament failed to overturn the President's objection, the law was adopted in the version proposed by the President.  The President could prioritize draft laws for consideration by the Parliament and could invite the Parliament to announce a draft law as urgent, i.e., to be considered within one month of its submission.  If such a request was not fulfilled, the President could issue a decree, which would remain in effect until the adoption of the new law by the Parliament.  Laws came into force within ten calendar days after the date of their first official publication, unless the laws or the relevant implementation acts had specified different terms for entry into force.  The Parliament could delegate its legislative powers to the President for a period of up to one year, while the President had the right to dissolve the Parliament in certain circumstances.  The President could decide to hold a national referendum, to issue decrees, and to issue decrees having the force of a law.

199.  The Parliament was a bicameral legislative body, consisting of a lower chamber, called the Majilis, and an upper chamber, called the Senate.  The Parliament was responsible for adopting constitutional laws, laws, resolutions of the Parliament, separate resolutions of the Senate and the Majilis, and for passing Constitutional amendments, upon the initiative of the President.  The Parliament could adopt and amend the State budget, as well as put forward an initiative calling for a national referendum.  At separate sessions, the Majilis, and then the Senate, ratified international treaties and took decisions on State loans and other forms of economic assistance.  The Senate, inter alia, had exclusive jurisdiction, at the initiative of the President, to elect and discharge the Chairperson and Justices of the Supreme Court.  The Majilis, inter alia, had exclusive jurisdiction to accept draft laws for consideration and to announce regular Presidential elections. 

200.  The Government was organized and chaired by the Prime Minister.  The Government was accountable to the President and to the Parliament.  The Government submitted draft laws to the Majilis, and was responsible for their implementation when enacted.  By-laws in the form of resolutions and directives could be issued by the Government.  By-laws of the Government, as well as the acts of municipal chief executives could be annulled by the President.  The mandate of the Government expired with that of the President, unless specifically terminated by the President.

201.  The representative of Kazakhstan noted that the Government was responsible for directing the national socio‑economic policy.  Kazakhstan's socio-economic and trade policies were developed and coordinated by the Ministry of National Economy.  The Ministry of Investments and Development was the principal body responsible for development of industrial and investment policies. 

202.  The representative of Kazakhstan noted that the governmental authority in Kazakhstan was administered at both the central and regional levels.  Local governmental power was divided between representative bodies called Maslikhats and executive bodies called Akimats.  Akimats were local executive bodies.  These were headed by Akims - representatives of the President and the Government - who (i) administered the local executive bodies; (ii) ensured the implementation of State policy on the relevant territory; and, (iii) ensured the coordinated functioning of all territorial branches of the central State bodies.  Akims also fulfilled the functions of a local public administration and were responsible for the social and economic development of the administered territory.  She further noted that local governments had (i) partial autonomy to regulate region‑specific economic relations; (ii) a regional (local) administrative system; (iii) the authority to make provisions for the development of business activities; (iv) the right to conclude concession contracts; (v) the authority to monitor the local budget; and, (vi) the obligation to coordinate foreign trade-related issues.

203.  Referring to item (vi) of the preceding paragraph, some Members asked the representative of Kazakhstan to explain if local administration bodies had to consult with the Government when initiating foreign trade-related projects and if they had an obligation to perform foreign trade activity on behalf of the Government.  The representative of Kazakhstan replied that, in accordance with Article 61 of the Constitution of the Republic of Kazakhstan, only the President, as well as members of the Parliament and the Government of the Republic of Kazakhstan had the right to initiate legislation, and local administrative bodies did not have the right to initiate legislation related to foreign trade.  Local administrative bodies had the right to submit their proposals on the improvement of legislation to the Government, which in turn had the right to initiate the drafting of a regulatory legal act on the basis of the submitted proposals.  Local administrative bodies were not authorized to perform foreign trade activities on behalf of the Government.  However, they had to adhere to the national foreign, internal, financial and investment policies, determined by the State (Government, President and Parliament).

204.  Asked to explain the relationship between local (sub-central) authorities and the central Government in the implementation of WTO provisions, the representative of Kazakhstan said that, according to Article 4 of Law No. 148-II "On Local Government in the Republic of Kazakhstan" of 23 January 2001, Maslikhats and Akimats did not have the right to adopt decisions inconsistent with national policy or Kazakhstan's international commitments, as set-out in ratified international agreements.  In particular, sub-central authorities could not independently impose measures aimed at hindering the free exchange of goods and services within the country, such as imposing taxes and issuing regulations.  Decisions of Akims or Maslikhats, which derogated from Kazakhstan's commitments ensuing from international agreements (including WTO commitments), could be annulled by the President, the Government, the Akim, as well as through court procedures.  In addition, the Prosecutor General's Office exercised constant supervision over the precise and uniform application of laws and other legislative acts.

205.  Judicial power was exercised by means of civil, criminal, and other legislation, within the framework of a three-tier unitary court system.  The Supreme Court was the supreme body for civil, criminal and other cases.  It exercised supervisory powers over the conduct of general jurisdiction courts within a statutory framework, and provided clarifications on issues relating to court practice.  The Supreme Court could also act as a nisi prius court (first instance court) whose decisions came into legal force from the date of their adoption.  Oblast and rayon (district) courts were courts of first instance, and proceedings conducted in these courts took place within two months upon receipt of the claim.  This period could vary, however, depending on the category of civil case.  Questions challenging the constitutionality of laws or by-laws were reviewed by the Constitutional Council.

206.  She further explained that Code No.155-II "On Administrative Offences" of 30 January 2001 was aimed at preventing administrative violations, while protecting the rights, freedoms and lawful interests of persons, citizens and organizations.  The Code addressed issues concerning the sanitary and epidemiological welfare and health of the population, the environment, public morals, property, public order and safety, and the established procedure for exercising State powers.  A hearing with a judge or an authorized body usually took place within 15 days (with a possible one month extension).  A request to reconsider the rulings of a judge or an authorized body could be made within one year from the date the court decision entered into force; the submission of such a request suspended the ruling's execution.  The Prosecutor-General or his deputies could ask a board of the Supreme Court to verify the legality and legal grounds of a decision on administrative violations, which had already taken legal effect.  The Supreme Court could reconsider previous rulings made by oblast and rayon (district) courts.

207.  Some Members asked whether, following accession, the WTO Agreement would have priority over Kazakhstan's national legislation and further sought a description of how, in legal terms, would WTO rules and commitments be ratified.  In response, the representative of Kazakhstan stated that paragraph 3 of Article 4 of the Constitution of the Republic of Kazakhstan stipulated that international agreements ratified by Kazakhstan, had priority over national legislation and this provision also applied to the terms of the Protocol of Accession of the Republic of Kazakhstan to the WTO.  Ratified international agreements were applied directly, except in cases when a law had to be adopted before an international agreement became applicable.  Asked to confirm that Kazakhstan needed to adopt a law domestically in order to make the WTO Agreement applicable, the representative of Kazakhstan replied that a law had to be adopted in cases, where (i) the current legislation did not comply with the WTO Agreement and had to be amended to comply with the WTO Agreement; or, (ii) issues contained in the WTO Agreement were not addressed in existing legislation.  Kazakhstan would ensure compliance of its legislation with commitments undertaken in accordance with the Protocol of Accession of the Republic of Kazakhstan to the WTO.  In accordance with the procedure of intergovernmental approval, it was planned that for the ratification of Kazakhstan's accession to the WTO, a draft law to that effect would be introduced to the Ministry of Justice, then presented to the Prime Minister's Cabinet for government approval and, finally, sent to the Parliament for enactment upon approval by both Chambers of the Parliament.  Current plans were for the draft law to be enacted in the first half of 2015.  She also stressed that no contradictions were expected to arise between WTO Membership obligations and those obligations contained in the Protocol of Accession of the Republic of Kazakhstan to the WTO and Kazakhstan's international agreements.

208.  The representative of Kazakhstan confirmed that the provisions of the WTO Agreement would be applied uniformly throughout the territory of the Republic of Kazakhstan, including in regions engaging in frontier traffic, special economic zones and other areas where special regimes for tariffs, taxes and regulations could be established.  She added that, in order to ensure compliance with provisions of the WTO Agreement any individual or entity could bring to the attention of the authorities of the Government of the Republic of Kazakhstan or competent EAEU body cases of non‑application or non-uniform application of provisions of the WTO Agreement in the Republic of Kazakhstan.  Such cases would be referred promptly to the responsible authorities without requiring the affected party to petition through the courts, and when non-application or non‑uniform application actually existed, the authorities of the Government of the Republic of Kazakhstan or a competent EAEU body would act promptly to address the situation, consistent with the laws and international obligations of the Republic of Kazakhstan.  The individual or entity notifying the authorities of the Government of the Republic of Kazakhstan or a competent EAEU body would be informed promptly in writing of any decision and action taken.  The Working Party took note of these commitments.

209.  The representative of Kazakhstan also confirmed that with respect to matters subject to the WTO Agreement, Kazakhstan's authorities would provide the right for independent review in conformity with WTO obligations, including but not restricted to, Article X:3(b) of the WTO General Agreement on Tariffs and Trade 1994, and relevant provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights and the WTO General Agreement on Trade in Services.  The Working Party took note of these commitments.

-           Framework of the Eurasian Economic Union of the Republic of Kazakhstan, the Russian Federation and the Republic of Belarus

(a)       Legal Framework Establishing the Eurasian Economic Union

210.  The representative of Kazakhstan informed Members that on 29 May 2014, the Republic of Kazakhstan (Kazakhstan), the Russian Federation (Russia) and the Republic of Belarus (Belarus) had concluded the Eurasian Economic Union Treaty (hereinafter: the EAEU Treaty).  The EAEU Treaty established the Eurasian Economic Union (EAEU) with the aim to create free movement of goods, services, capital and natural persons as well as coordinated or agreed policy in the sectors of economy, defined by the Treaty and international treaties within the EAEU.  The EAEU was established as an international organization of regional economic integration with international legal personality.  The EAEU Treaty replaced the international agreements concluded within the Customs Union (CU) and the Single Economic Space (SES) listed in its Annex No. 33 "Protocol on Termination of International Treaties, Concluded within the Framework of Formation of the Customs Union and Single Economic Space due to Entering into Force of the Treaty on Eurasian Economic Union", which were terminated when the EAEU Treaty came into effect on 1 January 2015.

211.  The representative of Kazakhstan explained that according to Article 7 of the EAEU Treaty, the EAEU had the right to exercise international activity aimed at the achievement of the objectives of the EAEU.  The EAEU had the right to engage in international relations with states, international organizations and international integration associations, and independently or jointly with the member States, conclude agreements on matters corresponding to its competence.  The procedure on international cooperation of the EAEU had to be established by the decision of the Supreme Eurasian Economic Council.  The issues concerning conclusion of agreements of the EAEU with a third party had to be determined by the international treaty within the EAEU.

(b)       Eurasian Economic Union Structure and Competency in the Area of Trade

212.  The representative of Kazakhstan explained that the following bodies were responsible for the implementation of the EAEU Treaty and international treaties within the EAEU:

-           the Supreme Eurasian Economic Council;

-           the Eurasian Intergovernmental Council;

-           the Eurasian Economic Commission (consisting of the Council and the Collegium); and,

-       the Court of the Eurasian Economic Union.

(c)       The Supreme Eurasian Economic Council

213.  The representative of Kazakhstan explained that the Supreme Eurasian Economic Council (hereinafter: the Supreme Council) was the highest level Body of the EAEU, which pursuant to the EAEU Treaty performed the following functions:

-           defined the strategy, directions and perspectives of formation and development of the EAEU and took decisions on implementation of objectives of the EAEU;

-           approved the structure of the Eurasian Economic Commission (hereinafter: EEC or Commission), assigned responsibilities among the members of the EEC Collegium and took decisions on termination of their powers;

-           appointed the Chairman of the EEC Collegium and took decisions on pre-term termination of his/her powers;

-           approved the rules on procedures of the Commission;

-          upon proposal of any member State of the EAEU, reconsidered decisions adopted by the Eurasian Intergovernmental Council or the Commission; 

-          upon proposal of the member States appointed judges of the Court of the Eurasian Economic Union (hereinafter: Court of the EAEU);

-          requested the opinion of the Court of the EAEU;

-          approved the budget of the EAEU, regulation on the budget of the EAEU and report on implementation of the budget of the EAEU;

 -         upon initiative of the Eurasian Intergovernmental Council or the Commission, considered the issues on which consensus was not achieved;

-          determined the order on admission of new members of the EAEU;

-          took decisions on granting observer or candidate status on accession to the EAEU;

-          approved the procedure on implementation of international activity of the EAEU;

-          took decisions on negotiations on behalf of the EAEU with third parties, including decisions on conclusion of international treaties and granting the right to negotiate as well as on expression of consent of the EAEU to be bound by international treaty with third party,  termination, suspension or withdrawal from international agreement; and,

-          performed other functions provided by the EAEU Treaty and international treaties within the EAEU.

The Supreme Eurasian Economic Council made its decisions and gave orders by consensus.

214.  The Supreme Eurasian Economic Council had to be held at the level of Heads of State.  Meetings of the Council of Heads of State had to be held at least once a year.

(d)       The Eurasian Intergovernmental Council

215.  The Eurasian Intergovernmental Council (hereinafter: Intergovernmental Council) was the body of the EAEU that consisted of the Heads of the Governments of member States of the EAEU.  Meetings of the Intergovernmental Council were held as necessary, but not less than twice a year.

216.  The Intergovernmental Council performed the following functions:

-           ensured implementation and control of implementation of the EAEU Treaty, international treaties within the EAEU and decisions of the Supreme Council;

-           upon proposal of the Council of the Commission, considered issues on which consensus by the Council of the Commission was not achieved;

-       gave instructions to the Commission;

-           proposed to the Supreme Council candidates to the members of the Council and Collegium of the Commission;

-           approved drafts of the budget of the EAEU, regulations on the budget of the EAEU and reports on performance of the budget of the EAEU;

-           upon proposal of any EAEU member State, considered issues on reversal or amendment of the approved decision of the  Commission or, if not agreed, took them for consideration of the Supreme Council;

-           approved decision on suspension of implementation of decisions of the Council or the Collegium of the Commission; and,

-           performed other functions provided by the EAEU Treaty and international treaties within the EAEU.

The Eurasian Intergovernmental Council made its decisions and gave orders by consensus.

        (e)   The Eurasian Economic Commission

217.  The Eurasian Economic Commission (hereinafter: EEC or Commission) was the permanent, regulatory body of the EAEU.  The Commission was established on the basis of the Treaty on the Eurasian Economic Commission of 18 November 2011 and continued its powers under the EAEU Treaty.

218.  The Commission carried out its activities within the competences stipulated in the EAEU Treaty, resolutions of the Supreme Eurasian Economic Council and international treaties that formed the legal framework of the EAEU. 

219.  The Commission consisted of the Council and the Collegium.  The Council consisted of one representative from each EAEU member State at the level of Deputy Prime Minister.  The Council took decisions by consensus and had the authority to cancel or revise any decisions made by the Collegium.  The Collegium of the Commission consisted of representatives from each EAEU member State based on the principle of equal representation.  The Collegium took decisions by qualified majority voting (i.e., two-thirds of the aggregate membership of the Collegium) or by consensus.  Voting took place on all issues or decisions taken by the Collegium.

220.  The competences of the Council and the Collegium were established by the EAEU Treaty and its Annex No. 1 "Regulation on the Eurasian Economic Commission".

        (f)   The Council of the Eurasian Economic Commission

221.  The Council of the Eurasian Economic Commission (hereinafter: Council of the Commission or EEC Council) carried out general regulation of integration processes of the EAEU and overall management on the Commission's activities, and performed the following functions:

-           organized the work aimed at enhancing the regulatory framework of the EAEU;

-           submitted proposals on main directions of the integration process within the EAEU to the Supreme Council for approval;

-           reviewed issues on revision or amendment of the Commission's decisions taken by the Collegium of the Commission;

-           reviewed issues in respect of monitoring and controlling implementation of international treaties that constituted the legal framework of the EAEU;

-       performed functions on organization of the Commission's activities;

-           provided instructions to the Collegium of the Commission; and,

-           performed other functions provided by the EAEU Treaty and international treaties within the EAEU.

        (g)   The Collegium of the Eurasian Economic Commission

222.  The Collegium of the Eurasian Economic Commission (hereinafter: Collegium of the Commission or EEC Collegium) was the executive body of the Commission. The Collegium of the Commission provided implementation of the following functions and powers:

-           elaborated proposals and collected proposals from the EAEU member States on further integration within the EAEU, including development and implementation of main directions of the integration;

-           took decisions, orders and recommendations;

-           implemented decisions and orders taken by the Supreme Council and the Intergovernmental Council and decisions taken by the Council of the Commission;

-           ensured monitoring and control on implementation of international treaties constituting the legal basis of the EAEU and decisions of the Commission and informed the EAEU member States on necessity of their implementation;

-           annually reported to the Council of the Commission on its work;

-          drafted recommendations on formation, functioning and development of the EAEU;

-          prepared written expert opinions on proposals of the EAEU member States submitted to the Commission;

-           assisted the EAEU member States in resolving disputes within the EAEU before appealing to the Court of the EAEU;

-           represented Commission's interests at court instances, including the Court of the EAEU;

-           interacted with public authorities of the EAEU member States within its competence;

-           considered requests submitted to the Commission;

-           developed drafts of international treaties and decisions of the Commission, taken by the Council of the Commission, as well as other documents, necessary for performing functions of the Commission;

-           ensured organization of meetings of the Council of the Commission, the Intergovernmental Council and the Supreme Council as well as subsidiary bodies of the Commission;

-           established consultative bodies within the Collegium of the Commission; and,

-           performed functions to organize the Commission's activities.

223.  A Member asked whether the Eurasian Economic Commission had the authority to negotiate international agreements and if so, who was the legal person signing and being the contact partner for such agreements.  The representative of Kazakhstan replied that in accordance with the EAEU Treaty, the Supreme Council took decisions on granting the right to conduct negotiations, expressing consent of the EAEU to be bound by international agreements with third parties, as well as on termination, suspension or withdrawal from such agreements.  The decisions on granting such mandates were to be taken on a case-by-case basis. 

224.  A Member enquired how the Commission interacted with Kazakhstan's domestic law authorities in the following areas:  sanitary, veterinary and phytosanitary measures, technical barriers to trade, any other areas where special committees or commissions reporting to the EEC Collegium had been established to administer trade-related authorities.  The representative of Kazakhstan replied that in the field of technical regulation, sanitary, veterinary and phytosanitary measures Kazakhstan's national authorities had actively participated in drafting, at that time, of the CU Agreements and, subsequently, the EAEU Treaty and regulations through special mechanisms established by legislation of the EAEU.  In particular, the Consultative Committee on Technical Regulation, Application of Sanitary and Phytosanitary Measures was a special consultative body that represented a platform for consultations among representatives from the EAEU member States.  Within the framework of the Consultative Committee, Kazakhstan's relevant authorities participated in preparing proposals on draft regulations on TBT and SPS, including draft technical regulations and conducted examination of legal acts of the EAEU. 

225.  In particular, according to the established procedures, draft technical regulations of the EAEU were developed by the EAEU member States.  A member State responsible for the development of a draft technical regulation designated a State body responsible for the development of the draft technical regulation.  The State body prepared the draft technical regulation and, taking into account proposals from the competent authorities of the EAEU member States, formed a working group on the development of the draft technical regulation. 

226.  In general, all EAEU legal acts on TBT and SPS measures had to be reviewed and approved by the relevant national authorities prior to their adoption by the Commission.

227.  With regard to other areas, according to paragraph 44 of Annex No. 1 "Regulation on the Eurasian Economic Commission" to the EAEU Treaty, the EEC Collegium had the right to establish consultative bodies.  At present, the EEC Collegium had established the following consultative bodies:

-       Consultative Committee on Natural Monopoly;

-       Consultative Committee on Transport and Infrastructure;

-       Consultative Committee on Trade;

-           Consultative Committee on Technical Regulation, Veterinary, Sanitary and Phytosanitary Measures;

-       Consultative Committee on Tax Policy and Administration;

-       Consultative Committee on Customs Regulation;

-       Consultative Committee on Electric Power;

-       Consultative Committee on Oil and Gas;

-       Consultative Committee on Industry;

-       Consultative Committee on Agricultural Sector;

-       Consultative Committee on Statistics;

-       Consultative Committee on Macroeconomic Policy;

-       Consultative Committee on Migration Policy;

-       Consultative Committee on Entrepreneurship; and,

-       Consultative Committee on Intellectual Property.

Consultative committees prepared proposals to the EEC Collegium and developed drafts of agreements and regulations.  Consultative committees consisted of representatives of state bodies of each EAEU member State and independent experts.  Chairman and Secretary of each Committee were the EEC representatives.  Therefore, the member States, through their representatives, participated in the decision making process of the EEC.

228.  Asked whether there would be a common EAEU procurement regime for "State and/or municipal procurement", the representative of Kazakhstan replied that the SES Agreement on Government (Municipal) Procurement had granted national treatment for government procurement to other member States from 1 January 2014 on a reciprocal basis.  This treatment continued to be authorized according to Section XXII "Government (Municipal) Procurement" and Annex No. 25 "Protocol on Regulation of Procurement" of the EAEU Treaty.

229.  Concerning the EEC competency on "mutual trade in services and investments" the representative of Kazakhstan said that trade in services and investments between the EAEU member States were regulated by Section XV "Trade in Services, Establishment, Activity and Investments" and Annex No. 16 "Protocol on Trade in Services, Establishment, Activity and Investments" of the EAEU Treaty.  The main objective of these provisions was to promote and liberalize trade in services between the EAEU member States, to create common principles and rules for mutual trade in services and create a favourable investment climate within the EAEU.  These provisions did not regulate trade in services and investments between the EAEU member States and third countries, and did not provide the EEC with the authority to regulate services and investments between the EAEU member States or with third countries.

230.  A Member asked Kazakhstan to clarify the authority of the EEC in intellectual property protection beyond border control.  The representative of Kazakhstan replied that, in accordance with the EAEU Treaty, the EEC conducted general supervision over the implementation of provisions on intellectual property rights of the EAEU Treaty.  The EAEU Treaty established common principles of copyright, trademark and patent regulation within the EAEU.  Currently, the EEC had not been given any authority in intellectual property protection beyond border control. 

231.  In response to the request to elaborate on the scope of authority of the EEC in "labour migration" and in "financial markets (banking, insurance, foreign exchange market, stock market)", the representative of Kazakhstan said that relevant provisions could be found in Section XXVI "Labour Migration" of the EAEU Treaty.  The EAEU Treaty regulated procedures related to labour activity of migrant workers and social protection of migrant workers (medical assistance and social insurance), who were citizens of the EAEU member States.  The EEC was responsible for general supervision over the implementation of the provisions of the EAEU Treaty.  The Consultative Committee on Migration Policy was established in order to develop proposals on the establishment of a unified legal regime for employment of citizens of the EAEU member States and the formation of a common immigration policy legal framework.

232.  As for the scope of authority of the EEC in "financial markets (banking, insurance, foreign exchange market, stock market)", the representative of Kazakhstan explained that relevant provisions could be found in Section XIV "Monetary Policy" and Annex No. 15 "Protocol on Measures Aimed at Coordinated Monetary Policy" of the EAEU Treaty.  Under the EAEU Treaty, the Commission was not delegated a decision‑making authority in the area of fiscal and monetary policy within the EAEU.  Decisions regarding policies in this area were made by each EAEU member State at the national level.  The EAEU member States agreed that the coordination of exchange rate policy would be performed by a separate body, composed of the Heads of the National (Central) Banks of the EAEU member States.  Article 103 of the EAEU Treaty provided that this body would be established in 2025.

(h)      Decision-making within the Bodies of the EAEU

233.  In accordance with Article 18 and paragraph 13 of Annex No. 1 "Regulation on the Eurasian Economic Commission" of the EAEU Treaty, the Commission within its authority took decisions mandatory for implementation by the EAEU member States, orders and recommendations.  Decisions of the Commission consisted of decisions made by the EEC Council and the EEC Collegium and were included in the legal framework of the EAEU, and were directly applicable in the territories of the EAEU member States.  The EEC Council and the EEC Collegium adopted decisions, orders and recommendations of the Commission within their powers.

234.  In accordance with paragraph 30 of Annex No. 1 "Regulation on the Eurasian Economic Commission" to the EAEU Treaty, a member State or member of the EEC Council had the right to make a proposal to the EEC Collegium on repealing or amending the decision within 15 calendar days from the date when the decision was adopted by the EEC Collegium.

235.  Upon receipt of all required documents from the EEC Collegium, the EEC Council had to make its decision within 10 calendar days.  A member State that did not agree with the adopted decision of the EEC Collegium could send a letter signed by the Head of its Government to repeal or amend the decision of the EEC Collegium by the Supreme Council.  This decision could not enter into force before its consideration by the Intergovernmental Council and/or the Supreme Council.

(i)        The Court of the Eurasian Economic Union

236.  The representative of Kazakhstan informed Members that provisions of the Statute of the Court of the Eurasian Economic Union (hereinafter: Court of the EAEU) could be found in Annex No. 2 to the EAEU Treaty.  In addition to establishing the Court of the EAEU, the Statute of the Court established the Court's competence and rules of procedure to be applied.  She explained that pursuant to provisions of the Statute, the Court was authorized to:

-           ensure uniform application and interpretation of international treaties within the EAEU, international treaties between the EAEU and third party and decisions taken by the bodies of the EAEU;

-           consider disputes arising on implementation of the EAEU Treaty, international treaties within the EAEU and/or decisions of the bodies of the EAEU; and,

-           interpret provisions of international treaties in force within the framework of the EAEU.

237.  In connection with the operation of the EAEU, the Court of the EAEU considered disputes regarding implementation of the EAEU Treaty, international treaties within the EAEU and decisions of the bodies of the EAEU:

1)     upon application of a  member State of the EAEU:

-           on compliance of international treaties within the EAEU or their provisions with the EAEU Treaty;

-           on compliance by other member States with the EAEU Treaty, international treaties within the EAEU and/or decisions of the bodies of the EAEU as well as  specific provisions of those international treaties and/or decisions;

-           on compliance of a decision of the Commission and/or its provisions with the EAEU Treaty, international treaties within the EAEU and decisions of the bodies of the EAEU; and,

-       on actions and/or omissions of the Commission.

2)     upon application of  an economic operator:

-           on compliance of a decision of the Commission and/or its provisions that affected his/her rights and legal interests in the sphere of economic activity with the EAEU Treaty and/or international treaties within the EAEU;

-           on actions and/or omissions of the Commission affecting his/her rights and legal interests in the sphere of economic activity with the EAEU Treaty and/or international treaties within the EAEU.

238.  The representative of Kazakhstan explained that if an EAEU member State or the Commission did not settle the matter within 3 months, the dispute could then be referred to the Court of the EAEU.  By mutual consent of the parties, the dispute could be referred to the Court of the EAEU prior to the expiration of this period.

239.  The representative of Kazakhstan emphasized that the competence of the Court of the EAEU was defined by the provisions of Part IV "Jurisdiction of the Court" of Annex No. 2 "Statute of the Court of the Eurasian Economic Union" to the EAEU Treaty.  The Court of the EAEU did not have jurisdiction to opine directly on the member States' WTO obligations and the Court of the EAEU could not rule on compliance with such obligations.  She also noted that the competence of the Court could be enlarged or limited only if it was prescribed directly by an international treaty constituting part of the legal framework of the EAEU.  The Treaty on the Functioning of the Customs Union in the Framework of the Multilateral Trading System of 19 May 2011 was such a Treaty.  Since this Treaty was part of the legal framework of the EAEU, an infringement by an EAEU member State, by the Supreme Council or by the EEC of such rights and obligations under the Treaty to the extent that they were part of the legal framework of the EAEU could be challenged by an EAEU member State before the Court of the EAEU in accordance with the Court's Statute.  In addition, economic operators could assert breaches of the provisions of the above-mentioned Treaty in the Court of the EAEU.

240.  The representative of Kazakhstan noted that the Statute of the Court of the EAEU also authorized the Court to issue clarifications on the EAEU Treaty, the provisions of the international treaties within the EAEU, as well as decisions of the bodies of the EAEU.  Such opinions were issued at the request of EAEU member States or the bodies of the EAEU, and were in the form of advisory opinions that did not prevent the member States from providing their own joint interpretations.  

241.  With regard to who could apply to the Court of the EAEU to hear a case, the representative of Kazakhstan explained that with regard to cases involving the EAEU, cases could be brought before the Court based on the application submitted by:

-           EAEU member States;

-           economic operators.

242.  Under the EAEU Treaty, economic operators of the EAEU member States and of third countries were able to bring actions to the Court of the EAEU to:

-           challenge decisions of the Commission in the sphere of economic activity if such decisions affected their rights and legal interests under the EAEU Treaty and/or international treaties within the EAEU; and,

-           challenge the actions and/or omissions of the EEC in the sphere of economic activity if such actions and/or omissions affect their rights and legal interests under the EAEU Treaty and/or international treaties within the EAEU.

243.  The grounds to challenge acts of the EEC, or their individual provisions, or any action and/or omission of the EEC were their non-compliance with international treaties concluded within the framework of the EAEU, which resulted in the violation of the rights and lawful interests of economic operators in the field of entrepreneurial and other economic activities, provided for by those international treaties.  She further explained that the Court of the EAEU would not consider applications to bring an action, if the decision of the Court on a previously considered case regarding the same subject and based on the same grounds was in effect.  A decision of the Court could be reviewed due to newly discovered circumstances.

244.  The representative of Kazakhstan further explained that, the EAEU member States had created an Appeals Chamber within the Court of the EAEU.  A party to the case had the right to appeal the decision of a panel of judges to the Appeals Chamber of the Court.  The Appeals Chamber consisted of judges of the Court from the member States, which had not participated in the panel that had taken the decision that was being appealed.  The decision of the Appeals Chamber was the final decision in the case and could not be appealed. 

245.  The representative of Kazakhstan stated that, with regard to disputes of an economic nature arising between the EAEU member States on the implementation of decisions of the bodies of the EAEU, treaty provisions in force in the framework of the EAEU, and cases in connection with the EAEU, the decisions of the Court were binding on the Parties to the dispute.  The decision of a panel of judges, if not appealed, entered into force 15 days after the date of its pronouncement.  Decisions of the Appeals Chamber were effective on the date of pronouncement.  If the decision of the Court was not implemented within the time‑frame specified by the Court, any EAEU member State Party to the case could apply to the Supreme Council for a decision on implementation.  In cases involving an economic operator where the EEC failed to implement the decision of the Court of the EAEU, the economic operator had the right to file an application to the Court on introduction of measures on the execution of the said decision.  The Court was obliged, within 15 days from receipt of the application from the economic operator, to address the Supreme Council with a request to take a decision on the issue.

(j)       Transparency

246.  The representative of Kazakhstan explained that proposals for the introduction, amendment or elimination of a measure were prepared by the interested EAEU member State in accordance with its national legislation.  This member State consulted with interested stakeholders on the proposal, as provided for in its applicable national legislation.  She also informed Members that such proposals by another member State, once submitted to Kazakhstan for consideration, would be promptly made subject to public consultations in the same way as proposals prepared by Kazakhstan.  In accordance with Annex No. 7 "Protocol on Non-Tariff Measures Concerning Third Countries" to the EAEU Treaty, participants of foreign activity of the member States could also provide their proposals and comments within the procedure of the development of draft Decision of the Commission on introduction, implementation or withdrawal of a non-tariff measure concerning trade in goods with third countries.  Furthermore, interested persons could also participate in consultations and be informed on the results according to the procedures and forms defined by the Commission.   

247.  The representative of Kazakhstan explained that the date when a Decision of the EAEU bodies was published on the EAEU website was the basis for determining the date of entry into force of that decision.  Specifically, Decisions of the EEC, rather than recommendations, as a general rule, entered into force not earlier than 30 days after the date of publication on the EAEU website. Decisions of the EEC were posted on the website www.eurasiancommission.org within two working days from the date of their adoption. 

248.  Members expressed concerns regarding transparency, and also noted that it appeared that neither international agreements within the EAEU, nor EEC Decisions, including those promulgating Regulations and other acts, provided WTO Members and interested persons of WTO Members with the right to consult with and provide views directly to the EEC.  This deficiency raised concerns about whether international agreements within the EAEU and procedures complied with WTO requirements.  These Members requested that Kazakhstan explain how it intended to implement its commitments under Section "Transparency" of this Report in cases where the EEC was responsible for proposing or adopting legal acts, including decisions, or other measures.

249.  With regard to concerns raised by Members about transparency and access to the EEC, the representative of Kazakhstan informed Members that nothing precluded WTO Members from providing comments directly to the EEC.  She noted that Kazakhstan invited views from Members on proposals that it was presenting to the EEC.

250.  The representative of Kazakhstan confirmed that Commission Decision No. 308 "Decision‑Making at the Commission of the Customs Union" of 18 June 2010 had been amended to establish and put into effect a mechanism for publication of proposed EAEU legal acts covered under paragraph 1141 of Section "Transparency" of this Report before their adoption and to provide a reasonable period of time for Members and interested persons to provide comments to the competent EAEU body, which was authorized to take these comments into account in its consideration of the proposed legal act.  Moreover, from the date of Kazakhstan's accession to the WTO, pursuant to this mechanism, no EAEU legal act covered under paragraph 1146 of Section "Transparency" of this Report would become effective prior to publication as provided for in the applicable provisions of the WTO Agreement.  The Working Party took note of these commitments.

(k)       Implementation of WTO Commitments under the EAEU Regime

251.  The representative of Kazakhstan explained that the EAEU member States had concluded the Treaty on the Functioning of the Customs Union in the Framework of the Multilateral Trading System of 19 May 2011 (hereinafter: Treaty on the Multilateral System).  This interstate Treaty had entered into force in accordance with the provisions of the Protocol "On the Rules of Entry into Force of International Treaties Comprising the Legal Basis of the Customs Union, Withdrawal from Them and Accession to Them" of 6 October 2007, and continued to be in effect under the EAEU Treaty.  According to the Treaty on the Multilateral System, from the date of accession of any EAEU member State to the WTO, the provisions of the WTO Agreement, as set-out in its Protocol of Accession, including the commitments undertaken by that member State as part of the terms of its accession to the WTO, which related to matters that the member States had authorized the EAEU bodies to regulate in the framework of the EAEU, as well as to the legal relationships regulated by the international treaties constituting the legal framework of the EAEU, became an integral part of the legal framework of the EAEU.  As such, these provisions were part of the single undertaking and were international agreements within the EAEU that were part of the single undertaking for each member State.  Under the Treaty on the Multilateral System, EAEU member States were obligated when making an international treaty in the framework of the EAEU to ensure that such EAEU treaty or agreement was consistent with the WTO commitments of each EAEU member State.  Similarly, when EAEU bodies adopted and applied EAEU acts, those acts had to comply with those commitments.  The representative of Kazakhstan further explained that the rights and obligations of the member States resulting from the WTO Agreement, as they were set out in the Protocol of Accession of each member State, including the commitments undertaken by each member State as part of the terms of its accession to the WTO and that became a part of the legal framework of the EAEU, could not be subject to abrogation or limitation by decision of the EAEU bodies, including the Court of the EAEU or by an international treaty of the member States.  When another EAEU member State became a WTO Member, the rights and obligations of that member State under the WTO Agreement also became an integral part of the legal framework of the EAEU.  She explained that WTO provisions which regulated the creation and functioning of customs unions also applied.  She noted that an EAEU member State that was not a WTO Member could deviate from provisions of the WTO Agreement in certain cases.  When that member State became a WTO Member, however, any deviation from the WTO Agreement would be allowed only as specifically provided for in the terms of accession to the WTO of that member State.  Finally, the EAEU member States were required to adopt measures to adjust the EAEU legal framework and decisions of the EAEU bodies to comply with the WTO Agreement as set-out in the Protocol of Accession of each member State.  Until those measures were adopted, other EAEU treaties and decisions of the EAEU bodies would apply only to the extent that they complied with the WTO Agreement.  Thus, the rights and obligations of an EAEU member State under the WTO Agreement would override prior and future EAEU treaties and agreements and decisions of the EAEU bodies.

252.  The representative of Kazakhstan explained that the Treaty on the Multilateral System was an EAEU treaty and part of the domestic legal framework of each EAEU member State.  As such, the national courts would apply the provisions of the Treaty.  She also confirmed that the Treaty on the Multilateral System established obligations on the EAEU member States and the Supreme Council and the EEC regarding the commitments undertaken by each member State as part of the terms of its accession to the WTO and became part of the legal framework of the EAEU.  Thus, an infringement of such rights and obligations by an EAEU member State or the Supreme Council or the EEC could be challenged by an EAEU member State, or the EEC before the Court of the EAEU.  In addition, economic operators could assert breaches of the provisions of the Treaty on the Multilateral System in the Court of the EAEU, as provided for in provisions of the Statute of the Court and in the Treaty on Judicial Recourse of 9 October 2010.

-           Government Entities Responsible for Making and Implementing Policies Affecting Foreign Trade; Right of Appeal

253.  The representative of Kazakhstan informed Members that the Court of the EAEU and the national judicial system of the Republic of Kazakhstan were independent.  The Statute of the Court of the EAEU provided that the highest judicial authority of the Republic of Kazakhstan was authorized to apply to the Court of the EAEU for an opinion on interpretation of certain international treaties.  The Court of the EAEU, however, did not serve as an appeals court for the national judicial system.  The representative of Kazakhstan noted that, in accordance with the Statute of the Court of the EAEU, the national Supreme Court of an EAEU member State could ask the Court of the EAEU to provide an advisory opinion in respect of implementation of EAEU legal acts.  Subsequently, the national Supreme Court could reflect this opinion in a normative resolution, which would be taken into account by all lower national courts.

254.  The representative of Kazakhstan stated that Decision of the Interstate Council of the Eurasian Economic Community (EurAsEC) at the level of Heads of State No. 16 of 27 November 2009 had established the Experts Council of the Supreme Body of the CU or the EAEU as of 1 January 2015, and had also adopted regulations on the operation of the Experts Council.  Interstate Council Decision No. 69 of 9 December 2010 had appointed the members of the Experts Council.  Economic operators could apply to the Experts Council for an opinion on whether an EEC Decision complied with an international treaty that was part of the legal framework of the EAEU.  If the Experts Council accepted an application, a Conciliation Commission was formed to examine the issue and to provide an opinion to the EEC on whether the EEC Decision conformed with the legal basis of the EAEU and, if the Decision did not conform, recommendations on revising the EEC Decision.  The EEC was required to inform the Supreme Council of the opinion of the Experts Council and the results of the consideration by the EEC of that opinion.

255.  Some Members enquired about the administrative and judicial channels for appeal of administrative decisions made on WTO-related issues, namely, how importers and exporters could appeal: (i) customs and other WTO-related decisions within administrative channels; and, (ii) administrative rulings to a court or other "independent tribunal" as provided for in Article X of the GATT 1994. 

256.  The representative of Kazakhstan replied that Kazakhstan applied the Treaty on the Customs Code of the Customs Union of 27 November 2009 (hereinafter: CU Customs Code) that had entered into force as of 1 July 2010.  According to Article 9 of the CU Customs Code, any person had the right to appeal against decisions made by the customs bodies, action and/or inaction of the customs bodies and their officials.  At the same time, such persons had to appeal in accordance with the national legislation of the country where the customs body or an official made a decision.  Thus, in accordance with Article 12 of Law of Kazakhstan No. 221-III "On Order of Review of Requests of Natural and Juridical Persons" of 12 January 2007, natural and juridical persons had the right to appeal against actions and/or inactions of the customs officials and decisions made by the customs bodies to a senior official or higher-level body no later than three months from the moment a natural or juridical person learned about an action or decision made by the relevant customs body or an official.  In case there was no senior official or an appellant did not agree with the decision, an appellant could appeal to the court in accordance with Code of Civil Procedure of Kazakhstan No. 411-I of 13 July 1999 (hereinafter: Code of Civil Procedure).  Article 278 of the Code of Civil Procedure defined the common judicial procedure for appeals, including administrative appeals, as well as for special proceedings.  According to Article 280 of the Code of Civil Procedure, natural and juridical persons had the right to appeal to the court within three months from the date when it had become known that their rights, freedoms and interests protected by law, were abused.  Besides, in both cases, a failure of a natural or juridical person to submit an application for appeal within the stated term of three months could not constitute a ground for rejecting an application.  The reason for failure to submit an application within the term of three months had to be investigated when considering a complaint and could be one of the grounds for rejection of the complaint.  The review of judicial decisions of rayon (district), oblast (regional) and other local courts made at first instance was carried out through an appeal/supervision procedure.  Prior appeal to higher bodies did not constitute a mandatory precondition for a direct appeal to the courts.  Irrespective of whether or not they participated in the hearing, the Prosecutor-General, rayon, oblast and other public prosecutors of equal stature, as well as their deputies, had the right to appeal against court judgments which had not yet come into force (other than judgments of the Supreme Court).  Parties to a case, as well as other parties affected by the decision, could also appeal against such decision.  Appeals had to be made within one month of the date of infringement and heard no later than one month from the date of receipt of the appeal by the court of first instance.  The court of appeal was authorized to make new findings of facts within the limits of the claim and investigate new evidence, which, for valid reasons, had not been presented at first instance.  Court decisions, rulings, decrees and orders, which had already come into force, could be reviewed and appealed within a year, on grounds stipulated in the Code of Civil Procedure (e.g., discovery of new facts), in line with the judicial supervision procedure.  Reviews of decisions made by the supervisory board of the Supreme Court, and a second review of the case by the supervisory board of the Supreme Court, were also allowed in certain cases. 

257.  As regards appeals and complaints in the sphere of technical regulation, including SPS issues, the representative of Kazakhstan explained that, under the EAEU, there was a common system of technical regulations, including SPS matters, and thus the Court of the EAEU had jurisdiction over appeals covered by the relevant EAEU agreements, EEC Decisions, including those promulgating EAEU regulations and other EAEU measures.  With regard to decisions, actions or inactions of the authorized bodies of the Republic of Kazakhstan, related to technical regulation, including SPS issues, she explained that legal measures were in place to allow appeals to be made via the independent judicial system against any decisions of the relevant authorities of the Republic of Kazakhstan and to ensure corrective action was taken, in accordance with decisions of the court, when a complaint was justified.

IV.   POLICIES AFFECTING TRADE IN GOODS

-       Registration Requirements for Import and Export Operations

258.  The representative of Kazakhstan said that the right of all domestic and foreign natural and juridical persons to carry out foreign trade activity in Kazakhstan, and any exceptions or restrictions upon those rights, were stipulated in the Eurasian Economic Union Treaty (EAEU Treaty), decisions of the Eurasian Economic Commission (hereinafter: EEC or Commission), other EAEU legal acts and national legislation.  In general terms, Article 2 of Civil Code of Kazakhstan (General Part) No. 269-XII of 27 December 1994 provided that goods, services and capital moved on a free basis within the territory of Kazakhstan, and Code of the Republic of Kazakhstan No. 296-IV "On Customs Issues in the Republic of Kazakhstan" of 30 June 2010 (hereinafter:  Customs Code of Kazakhstan) elaborated on that mandate.  She stated that from 1 January 2015, as a result of the entry into force of the EAEU Treaty, the principal requirements for importing goods into and exporting goods from Kazakhstan were based on Annex No. 7 "Protocol on Non‑Tariff Measures Concerning Third Countries" to the EAEU Treaty which replaced the provisions of the following Customs Union (CU) Agreements: the Agreement "On Common Measures of Non‑tariff Regulation in Respect of Third Countries" of 25 January 2008, the Agreement "On the Introduction and Implementation of Measures, Concerning Foreign Trade in Goods, on the Common Customs Territory in Respect of Third Countries" of 9 June 2009, the Agreement "On Licensing in the Area of Foreign Merchandise Trade" of 9 June 2009 which were terminated when the EAEU Treaty came into effect on 1 January 2015.  The following Decisions remained in force: Decision of the CU Commission No. 132 "On Common Non-Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009 (hereinafter: CU Decision No. 132) and Decision of the Collegium of the Commission No. 134 "On Normative Legislative Acts in the Area of Non-Tariff Regulation" of 16 August 2012 (hereinafter: Collegium Decision No. 134).  The procedure for the importation of specific products, such as ethyl spirits and alcohol products, products with cryptographic capabilities (encryption products), and medicines and pharmaceutical ingredients, were set-out in Regulations of the CU Commission approved by CU Decision No. 132 and re-approved by Collegium Decision No. 134.  Specific Sections of this Report relating to the import and export regimes of Kazakhstan provided descriptions of the provisions of the EAEU Treaty, Commission Decisions and other EAEU legal acts, including requirements for non-automatic import or export licenses and/or automatic licenses (permits).  The representative of Kazakhstan explained that, from 1 January 2015, pursuant to Annex No. 7 to the EAEU Treaty, these Decisions and Regulations, the authorized body of each EAEU member State was responsible for issuing non‑automatic import and export licenses and/or automatic licenses (permits), as well as activity licenses. 

259.  The representative of Kazakhstan explained that only declarants (importers/ exporters), or their representatives registered for that purpose, could perform the customs activities associated with the importation or exportation of goods (presenting customs documents, declaring origin and valuation, paying tariffs and taxes, securing release of the goods, right of appeal, etc.).  The requirements and rights of declarants (importers/exporters) were regulated by the Treaty on the Customs Code of the Customs Union of 27 November 2009 (hereinafter: CU Customs Code) and the Customs Code of Kazakhstan.  Pursuant to Article 284 of the Customs Code of Kazakhstan, as well as Article 186 of the CU Customs Code, the declarant had to be a natural or a juridical person of one of the EAEU member States who either had a contract for importation or exportation (or had had the contract concluded on his/her behalf) or owned the goods being imported or exported.  The requirements for a person or an entity to register as a juridical person of Kazakhstan were provided in Law No. 2198 "On State Registration of Juridical Persons and Statistical Record‑Keeping Registration of Branches and Representative Offices" of 17 April 1995 (hereinafter: Law No. 2198), Law No. 57-III "On Currency Regulation and Currency Control" of 13 June 2005 (hereinafter: Law No. 57-III), Budget Code of the Republic of Kazakhstan No. 95-IV  of 4 December 2008 (hereinafter: Budget Code of Kazakhstan) and Code of Kazakhstan No. 99‑IV "On Taxes and Other Obligatory Payments to the Budget (Tax Code)" of 10 December 2008 (hereinafter: Tax Code). 

260.  A Member raised concerns about the ability of natural and juridical persons located outside Kazakhstan to act as a declarant (importer of record) when importing goods into Kazakhstan.  This Member noted, in particular, that Kazakhstan's regime did not appear to permit such natural and juridical persons to serve as a declarant (importer of record) so as to be responsible for clearing all customs formalities in connection with their imports.  This Member asked Kazakhstan what steps it would take to provide such rights.

261.  The representative of Kazakhstan explained that Articles 186-194 of the CU Customs Code set forth the requirements for persons to import goods into the customs territory of the EAEU and perform all necessary customs procedures, including payment of customs duties and charges.  Article 186 of the CU Customs Code provided that only a juridical person of an EAEU member State could become a declarant.  Therefore, a subsidiary of a foreign company registered as a juridical person of Kazakhstan could become a declarant.  However, a foreign natural person could act as a declarant of goods for personal use without registering as a juridical person of Kazakhstan.

262.  The representative of Kazakhstan explained that requirements for actual registration of natural and juridical persons for commercial activities, including importing and exporting, were strictly a matter of the national legislation of each EAEU member State and this situation was not expected to change.  She emphasized that the requirement to be registered in Kazakhstan was necessary to ensure proper implementation of customs legislation, including its provisions on conditional release of goods into the territory of Kazakhstan and post-entry control that permitted accelerated customs procedures at the entry and destination customs checkpoints. 

263.  Concerning registration requirements, the representative of Kazakhstan stated that pursuant to Article 3 of Law No. 2198, State registration was mandatory for all juridical persons established on the territory of Kazakhstan regardless of the purpose and type of their activities.  Registration was necessary for:  (i) certifying and keeping a record on establishment, reorganization and liquidation of juridical persons, branches and representative offices; (ii) keeping the single State register of juridical persons, and record of branches and representative offices; and, (iii) dissemination of the data on juridical persons, branches and representative offices registered in Kazakhstan (other than confidential information and commercial secrets) in the order established by the national legislation. 

264.  Pursuant to Article 9 of Law No. 2198, State registration of small businesses, as well as medium and large-scale enterprises operating on the basis of a Model Charter, was performed within one working day and their re-registration within three working days from the date of submission of a complete set of application documents.  State registration (re-registration) of medium and large-scale enterprises not operating under a Model Charter was performed within seven working days from the date of submission of a complete set of application documents.  According to Article 6 of Law No. 2198, to apply for registration, juridical persons had to submit three copies of the following documents:  (i) standard application; (ii) articles of incorporation (charter); (iii) proof of payment of the registration fee; (iv) document certifying location/address of its office or its agent's office; and, (v) for juridical persons established as a result of restructuring, the act of transfer, including proof that creditors had been notified about the restructuring.  In response to a specific question, the representative of Kazakhstan explained that pursuant to Article 6 of Law No. 2198, either of the following documents was recognized as a document certifying location/address of a juridical person:  a notarized copy of (i) a leasing contract, (ii) a sales contract, or, (iii) other documents confirming the property right.  If the owner of the leased office was a natural person, a notarized document confirming consent of the natural person for the use of the office as a place of location of the juridical person had to be presented.  She noted that pursuant to Law No. 60-V "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of State Registration of Juridical Persons and Statistical Record-Keeping Registration of Branches and Representative Offices" of 24 December 2012, state registration of all commercial juridical persons, except for joint stock companies, was performed within one working day.  Furthermore, article of incorporation (charter), except for joint stock companies (article of incorporation (charter) was required), and document certifying location/address of its office or its agent's office were no longer required for state registration as a juridical person.

265.  In addition to submitting the documents described above, and unless otherwise provided by international treaties, juridical persons of Kazakhstan with foreign participation had to submit:  (i) a notarized and consularized (legalized) document certifying that the applicant was established in accordance with the legislation of the foreign country, accompanied by a notarized translation in Kazakh and Russian languages; and, (ii) a copy of the identification papers of the person registering the company (e.g., passport, identification card or residency permit), accompanied by a notarized translation in Kazakh and Russian languages.  These requirements applied in a uniform manner to all juridical persons with foreign participation and did not constitute actual discrimination against them.

266.  Registration could only be refused for lack of compliance of the company's founding documents with Kazakhstan's legislation and breaching the legal rules on the establishment of juridical persons.  The basis for refusal of registration (re-registration) was provided in Article 11 of Law No. 2198.  Refusals were communicated in writing within 10 working days, with a reference to the underlying reasons, and could be appealed to the courts. 

267.  Pursuant to Law No. 537-II "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of State Registration of Juridical Persons" of 18 March 2004, juridical persons, their branches and representative offices, obtained all certificates from the justice authorities on the basis of the "one-stop-shop" principle.  These certificates included a State registration certificate, a taxpayer registration certificate and a statistical certificate of registration in the State statistical register.  Registration certificates were issued for an unlimited period and a single registration was valid on the entire territory of Kazakhstan.  A registration certificate would be replaced only at re‑registration or when there had been a change in location.  A table summarizing the requirements for registration of juridical persons, including the duration of the procedure and applicable fees, is provided in Annex 5(A) of this Report.

268.  Some Members raised concerns about the requirement for re-registration and duplicate registration, since this requirement would amount to an ad valorem fee that appeared to place an extra burden on foreign businesses/entities.  These Members asked Kazakhstan to confirm that it would bring its registration fees into conformity with the requirements of Article VIII of the GATT 1994 prior to WTO accession, given that commercial registration was a requirement to import or export goods other than for personal use in Kazakhstan.  In response, the representative of Kazakhstan said that, pursuant to the "Methodology for Calculation of Fees and Fees for State Registration of Juridical Persons" approved by Order of the Ministry of Economy and Budget Planning No. 135 of 28 October 2005, registration fees for juridical persons, including small businesses, reflected the cost of services rendered.  The same criteria were applied to the calculation of fees for activity licenses necessary for importation or exportation.  Fees for State registration of juridical persons were calculated based on the Monthly Calculation Index (MCI) defined by the Tax Code.  The registration fee for small businesses was set at 2 MCIs (approximately US$20 in 2014); the rate for other juridical persons was 6.5 MCIs (approximately US$65 in 2014).  This difference was caused by the different level of costs/resources involved.  Less time and resources were required for the assessment of a registration for small businesses due to the lesser number of documents required for the registration of small businesses.  Therefore, the cost of services rendered was less than for the registration of other juridical persons.  All registration fees were applied uniformly on the territory of Kazakhstan.  The methodology for the calculation of fees is provided in Annex 5(B) of this Report. 

269.  A Member noted the substantial difference between the time required for registration of small businesses and other juridical persons and encouraged Kazakhstan to implement further reform so that the turn-around time for registration applications was equal for all business entities.  In response, the representative of Kazakhstan said that simplified State registration procedures applied to small businesses, including a reduced list of documents required for registration, and, consequently, a shorter registration period and smaller registration fee.  These simplified procedures were based on the fact that all such enterprises operated on the basis of a simplified Model Charter.  To date, her Government had not received any complaint on these procedures.  These preferential terms for small businesses were part of the Government's broader efforts aimed at addressing the strategic goal of reducing poverty and social disparity, and strengthening the middle class, a policy goal shared by other countries that provided special help to the formation and development of small businesses.  She held the view that these policy measures were applied on a non-discriminatory basis to both domestic and foreign entities and natural persons applying for registration and as such, did not, in her view, contradict WTO norms.  She further recalled that pursuant to Law No. 60-V "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of State Registration of Juridical Persons and Statistical Record‑Keeping Registration of Branches and Representative Offices" of 24 December 2012, State registration of all commercial juridical persons, except for joint stock companies, was performed within one working day.

270.  In response to another question from a Member, the representative of Kazakhstan explained that an "authorized economic operator" was a juridical person of an EAEU member State that met certain conditions, set forth in Article 39 of the CU Customs Code and Chapter 6 of the Customs Code of Kazakhstan, including provision of a guarantee for the payment of customs duties and taxes, a history of engaging in foreign economic activity, the absence of unfulfilled obligations or debts to the customs authority, the absence of administrative offences in the year prior to the application date, the availability of sufficient record-keeping procedures, and compliance with other relevant requirements of the EAEU member State, in this case, Kazakhstan, under which the juridical person was established.  According to Article 41 of the CU Customs Code and Article 65 of the Customs Code of Kazakhstan, an authorized economic operator enjoyed simplified and expedited customs procedures, including those concerning goods in transit.  Authorized economic operator status and access to simplified procedures applied only in the territory of the EAEU member State, which granted that status.  The representative of Kazakhstan also noted that an authorized economic operator could use simplified procedures provided that this operator had the right to act as the declarant of goods, towards which such special simplifications were applied.

271.  A Member asked the representative of Kazakhstan whether a firm or an enterprise registered in Kazakhstan was considered a "resident" for the purposes of preferential trade with other CIS countries.  This Member asked Kazakhstan to provide a clear distinction between juridical personhood in Kazakhstan through registration and being a "resident".  The representative of Kazakhstan replied that when a ratified international agreement did not contain a definition of the term "resident" for the purposes of the given agreement, the "residency" status was regulated by the provisions of the Budget Code, Law No. 57-III and the Tax Code.  According to these legal acts, companies were eligible to benefit from preferential trade under free trade agreements, including among the CIS, if they were registered in Kazakhstan as resident tax payers. 

272.  Several Members noted that laws and regulations relating to the right to trade in goods, "registration requirements" or "activity licensing" had not to be more burdensome than necessary and, thus, restrict imports in violation of the general prohibition on quantitative restrictions under Article XI:1 of the GATT 1994, nor should they discriminate against imported goods in violation of the provisions of Article III:4 of the GATT 1994.  Furthermore, fees and charges levied on the right to import had to be limited to the cost of services rendered as under Article VIII:1(a) and Article VIII:4(c) of the GATT 1994, and internal taxes or other internal charges on the right to trade in imported goods had not to lead to discrimination in favour of like domestic products as required by Article III:2 of the GATT 1994. 

273.  Members also asked Kazakhstan to confirm that foreign juridical persons could be the "importer and exporter of record" and that foreign importers and exporters could legally sign import/export contracts with foreign entities with a physical presence in Kazakhstan.  In reply, the representative of Kazakhstan explained that foreign juridical persons who registered their commercial presence in the form of juridical persons of Kazakhstan could be the importer and exporter of record, and such importers and exporters could legally sign import/export contracts with foreign entities and act as declarants for the purposes of importation and exportation. 

274.  In response to further questions from Members, the representative of Kazakhstan stated that the Government, in respect of measures affecting trade in goods with other WTO Members, would continue its policy of maintaining an expeditious registration process, and applying transparent and predictable requirements that were not burdensome to satisfy.  She added that Kazakhstan would not apply registration requirements to limit the possibility for juridical persons to engage in importing and exporting, and that once registered in the form of juridical persons of Kazakhstan, they could import or export products as described in this Report.  The representative of Kazakhstan confirmed that Kazakhstan would not make the procedures or overall requirements to register as a juridical person more burdensome than necessary, would not discriminate between foreign and domestic applicants in approving requests for registration, would not apply procedures and requirements in a restrictive manner and would also comply with other applicable provisions of the WTO Agreement including transparency obligations.  The Working Party took note of these commitments.

-       (a)   Ethyl Spirits and Alcohol Products

275.  Some Members expressed concern over the restrictive consequences of the activity licensing system for the sale of alcoholic beverages.  They requested information on the current legislation and Kazakhstan's intention to introduce new legislation in this area.  In particular, these Members sought information on the activity licensing fees charged for the right to import alcoholic beverages and on any plans for establishment of a State monopoly on alcoholic beverages.

276.  The representative of Kazakhstan explained that pursuant to Law No. 461-IV "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Improvement of Permission System" of 15 July 2011, amending Law No. 214-III "On Licensing" of 11 January 2007 (hereinafter: Law "On Licensing"), the requirement for an activity licence for importation of ethyl spirits and alcohol products, which was used as a condition for obtaining an import licence for ethyl spirits and alcohol products, had been eliminated as of 30 January 2012.  She noted, however, that importers into Kazakhstan of ethyl spirits and alcohol products were still required to have an activity licence for production, distribution, or storage of ethyl spirits and alcohol products, and to obtain and apply strip stamps for the purposes of excise tax payments, as described in Section "Application of Internal Taxes to Import" of this Report. 

277.  In addition, in accordance with CU Commission Decision No. 747 "On Amendments to Normative Legal Acts of the Customs Union in the Sphere of Non-tariff Regulation in Relation to Ethyl Spirits and Alcohol Products" of 16 August 2011, upon accession of any EAEU member State to the WTO, non-automatic import licensing requirements to ethyl spirits and alcohol products would be eliminated and replaced by an automatic licensing requirement.  As a consequence, existing domestic legislation requiring non-automatic import licensing for these products would be amended accordingly, including:  Law No. 429-I "On State Regulation of Production and Turnover of Ethyl Spirits and Alcohol Products" of 16 July 1999 (hereinafter: Law "On Regulation of Ethyl Spirits and Alcohol Products").  With the aim to eliminate import licence of ethyl spirits and alcohol products from the List of Goods Subject to Export and Import Licensing, the Rules on Export and Import Licensing, including Licensing of Goods Subject to Export Controls, and the Rules on Automatic Import Licensing of Certain Goods, Qualification Requirements for Licensed Activities and Approval of the List of Goods Subject to Export and Import Licensing, approved by Resolution of the Government of Kazakhstan No. 578 "On Certain Issues on Export and Import Licensing of Goods" of 12 June 2008, had been amended by Resolution of the Government of Kazakhstan No. 1320 of 17 October 2012.

278.  In response to a question from a Member, the representative of Kazakhstan said that according to Resolution of the Government of Kazakhstan No. 57 "On Certain Issues of Activity Licensing for Production of Ethyl Spirits and Production, Storage, Wholesale and/or Retail Sale of Alcohol Products Except for Storage, Wholesale and/or Retail Sale of Alcohol Products within the Territory of Production" of 29 January 2013, the prerequisites for obtaining an activity licence for storage and distribution of alcohol products included the requirement that the applicant had to either own or lease specialized premises for storage and distribution of alcohol products, provided that they complied with qualification requirements.  In this case, the applicant had to submit a copy of the sales or leasing contract.

279.  A Member asked whether importers of non-food products containing denatured alcohol, e.g., cosmetics, fragrances, cleaning products, paints and stains, etc. were required to obtain an activity licence for the "manufacture of alcohol products", the "storage, wholesale and/or retail sale of alcohol products", and the "import of ethyl alcohol and alcohol products".  The representative of Kazakhstan replied that the terms "manufacture of alcohol products", "storage, wholesale and/or retail sale of alcohol products" (found in Article 36 of Law "On Licensing") did not include non-food products containing denatured alcohol, e.g., cosmetics, fragrances, cleaning products, paints and stains, etc.  Pursuant to Law "On Regulation of Ethyl Spirits and Alcohol Products", the term "alcohol product" was defined as a food product with alcohol by volume of more than 1.5% produced with the use of ethyl spirits from food raw material and/or alcohol-containing food product, except for those of medical purposes registered as medicine in accordance with the legislation of Kazakhstan.  Law "On Regulation of Ethyl Spirits and Alcohol Products" and EAEU legal acts did not regulate the importation of non-food products containing denatured alcohol, such as cosmetics, fragrances, cleaning products, paints and stains, etc.

-       (b)   Pharmaceuticals

280.  A Member asked if the requirement for an activity licence to perform "pharmaceutical activities:  production, manufacture, wholesale and retail sale of medical preparations" included the act of importation only without the right to distribute in Kazakhstan.  The representative of Kazakhstan replied that activity licensing in respect of pharmaceuticals, including veterinary drugs, was maintained on production and distribution of pharmaceuticals because of potential damage of such activities to human or animal life and health.  Pursuant to Article 80 of Code of the Republic of Kazakhstan No. 193-IV "On People's Health and Healthcare System" of 18 September 2009, the right to import pharmaceuticals, including veterinary drugs, was granted to the following Kazakhstan entities, including foreign-invested enterprises, registered as a juridical person of Kazakhstan:

-       producers holding an activity licence for production;

-       enterprises holding an activity licence for wholesale of pharmaceuticals;

-           R&D organizations and laboratories importing pharmaceuticals for the purposes of development and State registration of the pharmaceuticals;

-           foreign producers or their authorized representatives for the purposes of conducting clinical trials, State registration and exhibitions; and,

-       medical organizations for provision of medical services.

More detailed information regarding registration and import licensing procedures for pharmaceuticals, including veterinary drugs, could be found in Chapter IV "Policies Affecting Trade in Goods", Section A "Import Regulations", Subsection (b) "Import Licensing" of this Report.

-       (c)   Products containing cryptographic capabilities, including goods                             with encryption technology and special technical devices

281.  Some Members noted that Kazakhstan required an activity licence to engage in production or distribution of goods with encryption technology, and required that applicants for a licence to import certain goods with encryption technology also had an activity licence.  In the opinion of a Working Party Member, an activity licence requirement imposed by Kazakhstan as a condition for importation or exportation of encryption products, as opposed to domestic distribution, constituted an unnecessary impediment to the right to import and export.  The Working Party Member asked how Kazakhstan would bring its import licensing regime for encryption products into conformity with WTO requirements.  Working Party Members also asked for assurances that the requirement to have an activity licence as a condition for obtaining an import licence, i.e., simply to import such goods, would not be applied as an unjustifiable restriction on imports. 

282.  In response, the representative of Kazakhstan explained that the term "distribution" in this case did not include the term "import".  Under Law "On Licensing", production and domestic distribution of encryption products were licensed activities in Kazakhstan, and an activity licence for production or distribution of encryption products was required to import encryption products. 

283.  The representative of Kazakhstan recalled the sensitivity of the goods that were subject to the import licensing requirement, and noted that many WTO Members regulated trade in encryption goods.  She added that no discrimination against imports was intended by this licensing system.  Moreover, the representative of Kazakhstan explained that pursuant to the Regulation "On the Order of Entry into the Customs Territory of the Customs Union and Removal from the Customs Territory of the Customs Union of Encryption (Cryptographic) Means" approved by Collegium Decision No. 134 (hereinafter: the Encryption Regulation), and as described in Chapter IV "Policies Affecting Trade in Goods", Section A "Import Regulations",  Subsection (b) "Import Licensing" of this Report, many goods with encryption technology no longer required an import licence and hence their importation did not require an activity licence either. 

284.  In response to a specific question, the representative of Kazakhstan informed Members that to obtain an activity licence related to production and sale of encryption products, a company, including a foreign-invested company, registered as a juridical person of Kazakhstan, had to have in its structure one expert with higher education in engineering.  The expert could be a citizen of Kazakhstan or a foreign national. 

285.  A Member stated that pursuant to Article 18 of Law "On Licensing", the "technical protection of State secrets", including the "repair and servicing of technical means for protection of State secrets", and the "development and selling (including another transfer) of means for information cryptographic protection", both required an activity licence.  This Member asked if these activities included:  importation, wholesale, or retail sale and leasing of commercially available electronic equipment and software with encryption technology used for purposes other than protecting State secrets, e.g., computers, smart cards, cell phones, etc.; or service and repair of after-sales or leased commercially available electronic equipment and software containing encryption technology used for purposes other than protecting State secrets.  In reply, the representative of Kazakhstan noted that the requirement for an activity licence for the "technical protection of State secrets", including "repair and servicing of technical means for protection of State secrets", had been eliminated by Law No. 36-V "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Reduction of Licensing Documents and Optimization of Control and Supervisory Functions Of State Bodies" of 10 July 2012.  The representative of Kazakhstan noted that within the framework of the EAEU, pursuant to paragraph 11 of the Encryption Regulation, the importation of certain goods with encryption technology, including "mass market goods", was subject to a onetime notification and hence did not require an import licence or an activity licence.  Maintenance and repair services of goods were not subject to licensing.  However, for distribution of goods with encryption technology in both wholesale and retail sale on the territory of the Republic of Kazakhstan, an activity licence was required for both domestic and imported goods.

286.  An activity licence was a prerequisite to obtain a licence to import a special technical device, as defined in the Regulation "On the Order of Importation into the Customs Territory of the Customs Union and Exportation from the Customs Territory of the Customs Union of Special Technical Devices Designed to Search Technical Channels of Information Leakage" approved by Collegium Decision No. 134.  An activity licence for development and production or repair and distribution of special technical devices was required when imported or produced domestically special technical devices were supplied to Operative-Investigation Agency entities in the territory of Kazakhstan.  To obtain an activity licence, the founders of such company had to have access to State secrets of the Republic of Kazakhstan.

287.  In reply to a specific question, the representative of Kazakhstan said that domestically produced special technical devices had to undergo the same approval procedure at the National Security Committee of the Republic of Kazakhstan as imported special technical devices.  An activity licence was required for "development and manufacturing" and "repair and distribution" of special technical devices.  She confirmed that the term "distribution" in this case did not include importation as a separate action, but that importers of special technical devices were required to hold one of the activity licenses due to the sensitivity of the goods.  Previously, an activity licence had been issued within 45 days.  However, pursuant to Law No. 461-IV "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on Issues of Improvement of Permission  System" of 15 July 2011, the period for issuing an activity licence had been reduced to 15 days.  Activities subject to licensing are listed in the last column of Annex 6 of this Report.

-       (d)   Conclusion

288.  The representative of Kazakhstan confirmed that, from the date of accession, the application of all laws, regulations and other measures affecting importation or exportation of goods, whether by Kazakhstan or the competent bodies of the EAEU, would be in conformity with relevant provisions of the WTO Agreement, including the WTO Agreement on Import Licensing Procedures and Articles I, III, VIII, and XI of the WTO General Agreement on Tariffs and Trade 1994.  She confirmed that, upon its accession to the WTO, Kazakhstan would ensure that the person who had the right, according to the EAEU Treaty, EAEU legal instruments, Commission Decisions or Kazakhstan legislation, to declare the imported goods would be permitted to pay relevant customs duties, fees and charges in connection with importation of alcohol products, pharmaceuticals or products with encryption technology without presenting an import and/or activity licence(s) to the customs authorities, and that these goods would be permitted to be withdrawn from the territory of the customs checkpoint for the purpose of free circulation in the territory of the Republic of Kazakhstan by the holder of the respective import and/or activity licenses.  The Working Party took note of these commitments.

A.     IMPORT REGULATIONS

-       Ordinary Customs Duties

289.  The representative of Kazakhstan explained that from 1 January 2015, the legal basis for the customs tariff of Kazakhstan was Article 42 "Common External Tariff of the Eurasian Economic Union" and Annex No. 6 "Protocol on Common Customs and Tariff Regulation" of the EAEU Treaty.  The Common External Tariff (CET) was established by Decision of the Interstate Council of the Eurasian Economic Community (EurAsEC) No. 18 "On  Common Customs Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009  (hereinafter: Decision of the EurAsEC Interstate Council No. 18).  According to Article 42 of the EAEU Treaty, the main objectives and purposes of the CET were:  (i) to rationalize the structure of the import of goods to the customs territory of the EAEU; (ii) to maintain a rational proportion of imported and exported goods on the customs territory of the EAEU; (iii) to create conditions for progressive changes in the structure of manufacturing and consumption of goods in the EAEU; (iv) to provide conditions for effective integration of the EAEU into the world economy; and, (v) to support the sectors of the economy of the EAEU.

290.  Pursuant to Decision of the EurAsEC Interstate Council No. 18, tariff rates were established by the Eurasian Economic Commission (hereinafter: EEC or Commission).  Furthermore, the rules for granting tariff preferences to developing and least-developed countries were stipulated in the Protocol on Common System of Tariff Preferences of the Customs Union of 12 December 2008 (hereinafter: Protocol on Tariff Preferences).

291.  According to the EAEU Treaty, the Commission issued decisions on CET rates based on the results of negotiations among the EAEU member States.  From 1 January 2010, the EAEU member States had no authority to change import customs duty rates unilaterally.  The representative of Kazakhstan further explained that the tariff exemptions applied by the EAEU member States were described in Sections "Investment Regime", "Tariff Exemptions" and "Trade‑Related Investment Measures" of this Report.

292.  The representative of Kazakhstan added that decisions on CET rates would normally be taken by the EEC by a two-thirds qualified majority vote, except for sensitive products (the 5,012 specified tariff lines listed in Annex 7 of this Report) on which consensus was required.  Consensus might also be required in other cases specified in the agreements comprising the legal basis of the EAEU.  She added that the position of Kazakhstan on trade policy issues that had been delegated to the competence of the EEC, including changes proposed by Kazakhstan or other EAEU member States in CET and non-tariff measures, was reviewed and approved by the Government Inter-Agency Commission on Trade Policy Issues and Participation in International Economic Organizations.

293.  In response to the request of a Member to remove from Article 1 of the Agreement on Common Customs and Tariff Regulation of 25 January 2008 the provision stating the objective of the CET as "to protect the economy of the Customs Union from unfavourable influence of foreign competition", the representative of Kazakhstan replied that this provision was not incorporated into the EAEU Treaty and therefore no longer existed as of 1 January 2015.

294.  The representative of Kazakhstan said that Kazakhstan had replaced a 9-digit tariff nomenclature with a 10-digit nomenclature on 1 January 2004, which had been based on the 2002 revision of the Harmonized Description and Coding System (HS 2002).  Later, new import duties had been established by Government Resolution No. 1317 "On Customs Tariff and Goods Nomenclature of Foreign Economic Activity of the Republic of Kazakhstan" of 28 December 2007 and these had been applied until 1 January 2010.  Asked to provide the Customs Tariff schedule in HS 2007, including the concordance table between HS 2002 and HS 2007, the representative of Kazakhstan said that CET rates could be found on the official website of the Commission (http://www.eurasiancommission.org/en/ act/trade/catr/Pages/default.aspx). The concordance table HS 2002-2007 had been provided separately to the WTO Secretariat. 

295.  The representative of Kazakhstan added that, from 1 January 2010, CET applied tariff rates had been established in the Common Tariff Nomenclature of the Foreign Economic Activity of the Customs Union, which had been based on the HS 2007 nomenclature, as provided for in the Agreement "On Common Tariff Nomenclature of Foreign Economic Activity of the EurAsEC" of 11 June 2003.  As of January 2012, according to CU Commission Decision No. 850 "On New Version of the Common Commodity Nomenclature of Foreign Economic Activity of the Customs Union and Common External Tariff of the Customs Union" of 18 November 2011, Kazakhstan applied CET tariff rates based on the HS 2012 nomenclature.  WTO tariff negotiations had been conducted in the HS 2002 nomenclature, reflecting the tariff nomenclature Kazakhstan had been using at the time these negotiations had commenced.  Based on the results of bilateral market access negotiations on goods, the WTO Secretariat had completed the Draft Consolidated Schedule of Tariff Concessions and Commitments and had converted it into the HS 2007 nomenclature.   

296.  The representative of Kazakhstan noted that currently the CET consisted of 11,170 tariff lines.  A significant majority of tariff lines (9,208 items) were subject to ad valorem duties and 216 tariff lines were subject to specific duties.  The ad valorem rates ranged from 0% to 30%, except for a limited number of products, including meat products, i.e., beef, pork and poultry, on which EAEU member States applied tariff rate quotas, where in-quota rates were established at the level between 0% and 25%, and out‑of‑quota rates were between 50% and 80%.  Tariff items subject to specific rates included apples, chocolate, beer, and strong alcoholic beverages.

297.  The representative of Kazakhstan explained that the remaining 1,746 tariff items in the CET were subject to combined (mixed) duties.  She explained that combined duties were expressed in terms of alternative rates, one as an ad valorem rate and the other as a specific rate that served as a minimum rate of duty, e.g., 5%, but no less than €1 per kg.  Either the ad valorem duty rate or the specific duty rate was applied depending exclusively on the customs value of the goods.  In response to a question, she noted that combined tariff rates were applied to:  live swine, meat, certain species of fish, fermented or acidified milk and cream, whey, butter and cheese, bird's eggs, flowers, tomatoes, cucumbers, bananas, citrus fruits, coffee and tea, rice, malt and starches, preserved vegetables, plant oils, sausages and other preparations of meat, juices, tea and coffee extracts, yeasts, food preparations not elsewhere specified (ex. HS 2106), waters and ethyl alcohol, preparations used in animal feeding, cigars and cigarettes, sodium sulphides, resorcinol and its salts, maleic anhydride, bleaches and soap, dextrin and modified starches, plastics and articles thereof, tyres of rubber, leather and fur articles, articles of paper and paperboard, nonwovens, carpets and textile floor coverings, coated fabrics, textiles, footwear, headgear, artificial flowers, ceramic products, imitation jewellery, aluminium and articles thereof, tin and articles thereof, apparels, home electronics, cars, watches and furniture. 

298.  The representative of Kazakhstan confirmed that for goods subject to a combined duty, it would be ensured, whether by Kazakhstan or the competent bodies of the EAEU, that the ad valorem equivalent of the specific duty rate for each tariff line, calculated based on the average customs value, would be no higher than the alternative ad valorem duty rate for that tariff line in the Schedule of the Republic of Kazakhstan in accordance with the following provisions:

(i)         On an annual basis, it would be determined, whether by Kazakhstan or by the competent bodies of the EAEU, whether it was necessary to reduce the applied specific duty rate to ensure that it was no higher than the applied ad valorem duty rate;

(ii)        This calculation would be done two months before the end of each calendar year, beginning in the first calendar year after the date of the accession of Kazakhstan;

(iii)       Data for the calculations would be from a three-year period, determined by taking trade data from a recent five-year representative period and excluding data for years with the highest and lowest trade for that period;

(iv)       Data on trade with countries or territories with which Kazakhstan had a customs union or free trade agreement would be excluded from the calculation; and,

(v)        Data would be drawn from the Official Customs Statistics of the Republic of Kazakhstan notified to the WTO Integrated Database (IDB) unless such data was unavailable.  In such case, IDB and COMTRADE data would be used.

Kazakhstan would inform Members of the results of these calculations on a tariff line basis and, if the results showed that it was necessary to reduce the specific duty rate alternative, this reduction would be made and would go into effect automatically, beginning on 1 January of the year following the calculation.  In no case would the applied duty (whether expressed in ad valorem or specific terms and whether determined by Kazakhstan or the competent bodies of the EAEU) exceed the bound rate of the combined duty.  If, after reductions based on the annual re‑calculation and changed circumstances, the specific duty rate alternative became significantly lower than the ad valorem alternative rate of duty, Kazakhstan reserved the right to modify permanently the form of the duty to a purely ad valorem duty, at a level that complied with the binding for the relevant tariff line.  The Working Party took note of these commitments.

299.  The representative of Kazakhstan informed Members that the provision allowing for the application of the customs duties at the double MFN rate to the import of goods of undeterminable country origin had been eliminated pursuant to Law No. 211-III "On Amendments and Addenda to the Customs Code of the Republic of Kazakhstan" of 8 January 2007.  Subsequently, such imports were subject to the normal MFN rate.  She further stated that in accordance with Article 36 "Tariff Preferences in Respect of Goods Originating from Developing and/or Least Developed Countries" of the EAEU Treaty and the Protocol on Tariff Preferences, Kazakhstan applied the EAEU Generalized System of Tariff Preferences for developing and least‑developed countries (EAEU GSP Scheme).  The lists of developing countries beneficiaries of the EAEU GSP Scheme (Annex 8 of this Report), least developed countries beneficiaries of the EAEU GSP Scheme (Annex 9 of this Report) and goods originating and imported from developing and least developed countries subject to the EAEU GSP Scheme (Annex 10 of this Report) were established by Decision of the EurAsEC Interstate Council No. 18 and adopted by CU Commission Decision No. 130 "On Common Customs Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009 (hereinafter: CU Commission Decision No. 130).  Under the EAEU GSP Scheme, the import duties applicable to products included into Annex 10 of this Report and originating from developing countries were at the level of 75% of the MFN duty rates and from least developed countries at the level of 0%.

300.  In response to a question by a Member, the representative of Kazakhstan explained that tariff preferences for goods originating from developing or least developed countries, that were subject to the EAEU GSP Scheme, would be granted if the goods were purchased in that country from a resident of the country.  Such goods had to be delivered directly or in transit through third countries to the territory of the EAEU, without them being put into free circulation in those third countries in case of transit.  As provided for in the Annex to the CU Agreement on Rules for Determining the Origin of Goods from Developing and Least Developed Countries of 12 December 2008, goods were also considered purchased in the country of origin if they were purchased at an exhibition or fair.

301.  In response to requests from Members, the representative of Kazakhstan confirmed that, upon its accession to the WTO, the GSP Scheme for developing and least developed countries would be applied, whether by Kazakhstan or by the competent bodies of the EAEU, in conformity with the relevant provisions of the WTO Agreement.  The Working Party took note of this commitment.

302.  Some Members expressed concerns that paragraphs 2 and 7 of CU Commission Decision No. 130 could allow the application of import duties in a discriminatory manner, either vis-à-vis third countries or in relation to certain imports exempted from duties for investment projects.  The representative of Kazakhstan confirmed that all import tariffs were applied by Kazakhstan in a non-discriminatory manner vis-à-vis third countries on the basis of trade and cooperation agreements, except if otherwise provided for under regional trade agreements or the EAEU GSP Scheme.  Exemptions from the CET within the framework of investment projects were described in the Sections "Investment Regime", "Tariff Exemptions" and "Trade-Related Investment Measures" of this Report, as appropriate. 

303.  In response to requests from Members, the representative of Kazakhstan confirmed that Kazakhstan would submit its Information Technology Agreement (ITA) Schedule to the ITA Committee for verification, in accordance with ITA procedures, in order to enable Kazakhstan to join the ITA when it became a WTO Member.  The Working Party took note of this commitment.

304.  Kazakhstan undertook bilateral market access negotiations on goods with Members of the Working Party. The results of those negotiations were reflected in a draft consolidated Schedule of Concessions and Commitments on Goods circulated by the WTO Secretariat on 26 September 2012 as document WT/ACC/SPEC/KAZ/10/Rev.3.  Following Kazakhstan's membership to the EAEU, some Members noted that the tariff rates applied by Kazakhstan under the CET differed from the results agreed to in the bilateral goods market access negotiations.  Since Kazakhstan had limited exceptions from the CET, these Members expressed concern that Kazakhstan would not be in a position to implement the tariff rates agreed to in the bilateral market access negotiations.

305.  In response, the representative of Kazakhstan confirmed that, as a result of negotiations with those WTO Members with whom it had concluded bilateral goods market access protocols, upon accession:

(a)    for those goods for which the final bound tariff rate agreed in bilateral negotiations with WTO Members was lower than the final bound tariff rate of the Russian Federation as set out in its Protocol of Accession, Kazakhstan would bind its final bound tariff rate at the lower rate;

(b)   for those goods for which the final bound tariff rate of the Russian Federation as set out in its Protocol of Accession was lower than the final bound tariff rate agreed in Kazakhstan's bilateral tariff negotiations, Kazakhstan would bind its relevant final bound tariff rate at the lower final bound tariff rate of the Russian Federation;

(c)    for goods identified under subparagraph (b), Kazakhstan would adjust its bindings to reflect the staging of reductions that result from the Protocol of Accession of the Russian Federation; and,

(d)   For those goods for which the current bound tariff rate of the Russian Federation as set out in its Protocol of Accession was lower than the initial or current bound tariff agreed in Kazakhstan's bilateral tariff negotiations, Kazakhstan would bind its relevant initial or current bound tariff rate at the lower current bound tariff rate of the Russian Federation at every stage of implementation.

 

The results of the bilateral market access negotiations and the commitments undertaken in subparagraphs (a) through (d) are contained in the Schedule of Concessions and Commitments on Goods number CLXXII and form Annex 1 to the Protocol of Accession (hereafter: "the Accession Schedule").

 

306.  Noting the fact that the tariffs that Kazakhstan applied under the CET were, in some cases, higher than those contained in the Accession Schedule, Members inquired how Kazakhstan would ensure the respect of its obligations stemming from its membership of both the WTO and the EAEU.

307.  The representative of Kazakhstan confirmed that Kazakhstan would fully implement upon accession the commitments contained in the Accession Schedule in particular through the relevant EAEU instruments, including the maintenance of exceptions from the EAEU CET with respect to tariff lines for which the EAEU tariff rates are inconsistent with the Accession Schedule, until such time as the adjusted tariff rates negotiated and agreed to pursuant to paragraphs 308 to 311 have been bound in the modified schedule of Kazakhstan and been implemented by the EAEU.  In case the EAEU does not implement the adjusted rates, the commitments contained in the Accession Schedule would prevail.  She further confirmed that all goods, including those referred to in subparagraph (a) of paragraph 305, entering the EAEU territory for import in Kazakhstan would benefit from the rules on transit as they are set out in the WTO Agreement, including Article V of the GATT 1994, irrespective of prohibitions or restrictions of imports into its own territory that a specific EAEU member may apply. The Working Party took note of these commitments.

308.  The representative of Kazakhstan further confirmed that no earlier than three years and six months from the date of full implementation of all the final bound tariff rates contained in the Accession Schedule for goods covered by sub-paragraph (a) of paragraph 305, Kazakhstan would seek to align the Accession Schedule with the final bound tariff rate of the Russian Federation as set out in its Protocol of Accession and, therefore, commence negotiations with those WTO Members that had concluded bilateral goods market access protocols with Kazakhstan and would be affected by such alignment, i.e., those holding INRs or those having a principal or substantial supplying interest by the date on which the negotiations start or those having annual average imports into Kazakhstan of at least US$ 175,000 per tariff line per year during the period of 2008-2013 (hereafter: "affected Members").  For that purpose, six months before the start of the negotiations Kazakhstan would notify WTO Members of its intention to commence them and would provide to Signatory Members that had concluded bilateral goods market access protocols with Kazakhstan all data relevant for the conduct of those negotiations, which includes the list of items subject to modification with the corresponding tariff line numbers and tariff rate information and statistics of imports of the products involved, by country of origin, for the last three years for which statistics are available.  The Working Party took note of these commitments.

309.  The negotiations referred to in paragraph 308 would include the tariff rate increases on goods subject to sub-paragraph (a) of paragraph 305.  The negotiations referred to in paragraph 308 would not include tariff rate increases on goods subject to sub-paragraph (b) of paragraph 305.  For goods subject to negotiation, the representative of Kazakhstan confirmed that no tariff lines subject to increase of the bound import tariff rates of Kazakhstan would be a priori excluded from the scope of these negotiations.  The Working Party took note of these commitments.

310.  The negotiations referred to in paragraph 308 would be entered into in good faith with a view to achieving within 3 years from commencement of such negotiations mutually satisfactory compensatory adjustment.  The negotiations of compensatory adjustment may include formula approaches and requests on specific priority tariff lines.  The value of compensatory adjustment  with respect to each affected Member should be calculated as the difference between the value of duties payable for the average yearly MFN imports to Kazakhstan from that affected Member that occurred during the reference period of three years of trade data available at the start of the negotiations, calculated on the basis of the final bound tariff rates of the Russian Federation, and the value of duties payable for the same trade, calculated on the basis of the final bound tariff rates of Kazakhstan.  In these negotiations any SPS measures or special circumstances existing in the EAEU that have affected trade during the reference period will be taken into account.  In the event that satisfactory compensatory adjustment is not achieved within the timeframe for the negotiations, the matter should be referred to the WTO General Council. The Working Party took note of these commitments.

311.  The representative of Kazakhstan confirmed that, as the alignment of the Schedule results from membership in a customs union, she should endeavor to ensure all members of the EAEU which are WTO Members should enter into those negotiations and participate in the compensatory tariff adjustment negotiations.  She further confirmed that the representative of the Russian Federation had stated on several occasions that the Russian Federation, which is also a member of the EAEU, would have to participate in such compensatory adjustment in line with WTO obligations applicable to customs unions.  The Working Party took note of these commitments.

312.  The representative of Kazakhstan confirmed that, under the EAEU regime described in paragraphs 251 and 252 of the Report of the Working Party on the Accession of Kazakhstan and in paragraphs 185 and 186 of the Report of the Working Party on the Accession of the Russian Federation to the WTO, the WTO commitments undertaken by an EAEU member are part of the EAEU legal framework.  The representative of the Russian Federation supported the statements of the representative of Kazakhstan reflected under paragraphs 311 and 312 of this Report.

313.  To reflect the results of these negotiations, the CET and the Accession Schedule will be modified.  For goods subject to negotiation according to paragraph 309 Kazakhstan confirmed that it would not have recourse to Articles XXIV:6 or XXVIII of the GATT 1994 and will continue to apply the commitments contained in the Accession Schedule from the date of its accession until such time as the adjusted tariff rates are negotiated and agreed by consensus with the affected Members have been bound in the modified schedule of Kazakhstan and been implemented by the EAEU.  In case the EAEU does not implement the adjusted rates, the commitments contained in the Accession Schedule would prevail.  The Working Party took note of these commitments.

-       Other Duties and Charges

314.  A Member sought a commitment from Kazakhstan that it would not list any other duties and charges (ODCs) in its Goods Schedule under Article II:1(b) of the GATT 1994, binding such charges at zero from the date of accession to the WTO.

315.  The representative of Kazakhstan replied that duties on imports were applied in accordance with Article 42 "Common External Tariff of the Eurasian Economic Union" and Annex No. 6 "Protocol on Common Customs and Tariff Regulation" of the EAEU Treaty, Decision of the Interstate Council of the Eurasian Economic Community (EurAsEC) No. 18 "On Common Customs and Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009 and CU Commission Decision No. 130 "On Common Customs and Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009.  These provisions authorized the Commission to establish and change the customs tariffs of the EAEU member States, including Kazakhstan, as described in Section "Ordinary Customs Duties" of this Report.  No other duties and charges were authorized.  Therefore, she confirmed that Kazakhstan did not apply any other duties and charges on imports within the meaning of Article II:1(b) of the GATT 1994. 

316.  Noting this statement, some Members asked Kazakhstan to bind at zero other duties and charges (ODCs) in its Schedule of Concessions and Commitments on Goods and to undertake a commitment that it would not apply such measures except in conformity with WTO obligations.

317.  The representative of Kazakhstan confirmed that Kazakhstan had bound all tariffs in its Schedule of Concessions and Commitments on Goods.  She confirmed that from the date of its accession to the WTO, Kazakhstan would not apply other duties and charges within the meaning of Article II:1(b) of the GATT 1994 and would bind such duties and charges at zero in relation to all goods.  These bindings were recorded in the Schedule of Concessions and Commitments on Goods of the Republic of Kazakhstan annexed to the GATT 1994.  The Working Party took note of these commitments.

-       Tariff Exemptions

318.  The representative of Kazakhstan noted that from 1 January 2015, the legal basis for granting tariff exemptions imported into the EAEU was Article 43 "Tariff Exemptions" and Part II of Annex No. 6 "Protocol on Common Customs and Tariff Regulation" of the EAEU Treaty.  Part II of Annex No. 6 to the EAEU Treaty provided a framework for a unified list of tariff exemptions.  Article 45 of the EAEU Treaty authorized the EEC to establish unified lists.  More specific provisions regarding the unified list of tariff exempted goods were elaborated in the Decision of the Interstate Council of the Eurasian Economic Community (EurAsEC) No. 18 "On Common Customs Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" (hereinafter: Decision of the EurAsEC Council No. 18) and CU Commission Decision No. 130 "On Common Customs and Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation" of 27 November 2009 (hereinafter: CU Commission Decision No. 130).   CU Commission Decision No. 331 "On Approval of the List of Goods Temporarily Imported with Conditional Exemptions from Payments of Customs Duties, Taxes, and on Conditions of such Exemptions, including Time-Frames" of 18 June 2010 (hereinafter: CU Commission Decision No. 331)  approved the list of temporarily imported goods fully exempt from payment of customs duties.  The EAEU Treaty and the Decisions also provided for other types of exemptions, e.g., for investment purposes (described in Sections "Trade-Related Investment Measures" and "Industrial Policy including Subsidies" of this Report), tariff preferences for developing and least developed countries (described in Section "Ordinary Customs Duties" of this Report) and tariff rate quotas (described in Section "Tariff Rate Quotas" of this Report).  Special limited derogations for individual EAEU member States from the CET were elaborated in the Protocol on Conditions and Procedure for Use in Exceptional Cases of the Rates of Import Customs Duties Other than Common Customs Tariff Rates of 12 December 2008 (hereinafter: Protocol on Exceptions from the CET), which expired on 1 January 2015.

319.  The representative of Kazakhstan said that prior to 1 January 2010, the granting of tariff exemptions had been regulated by Customs Code of Kazakhstan No.401-II of 5 April 2003, and Resolutions of the Government of Kazakhstan No. 668 "On Adoption of the List of Temporarily Imported Goods Exempt from All Customs Duties and Taxes and Temporarily Exported Goods from All Customs Duties" of 8 July 2003 (hereinafter: Government Resolution No. 668), and No. 1092 "On Adoption of the List of Leasing Objects Subject to the Customs Regime of Temporary Importation and Temporary Exportation of Goods" of 21 August 2001 (hereinafter: Government Resolution No. 1092).  Article 330 of the Customs Code of Kazakhstan had provided for tariff exemptions for: (i) diplomatic imports; and (ii) goods imported for implementation of investment projects granted for a period of up to five years.  The Investments Committee under the Ministry of Industry and Trade had been in charge of providing investment preferences, including customs duty exemptions.

320.  In accordance with Part II of Annex No. 6 to the EAEU Treaty and the relevant provisions of the CU Customs Code, tariff exemptions could be granted to the following goods imported into the customs territory of the EAEU:  (i) goods imported under the customs control within the customs regimes established by the customs legislation; (ii) goods imported as a contribution to the charter capital by foreign investor within the time-frame determined by the charter documents for capital formation; and, (iii) goods imported within the framework of international cooperation of the EAEU member States with third countries in the field of research and exploration of space, and also within the agreements regarding services in spacecraft launch.  The specific list of the above-mentioned goods to be exempted was approved by CU Commission Decision No. 727 "On Introduction of Amendments to Decision of the Customs Union Commission No.130 'On Common Customs and Tariff Regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation' of 27 November 2009" of 22 June 2011.

321.  The representative of Kazakhstan noted that goods could be exempted from the customs duty within the framework of customs regimes provided for in relevant customs legislation e.g., the CU Customs Code.  Article 80 of the CU Customs Code listed the situations when customs duties need not to be paid, which reflected circumstances faced by customs officials in the course of customs processing.  These circumstances included:  (i) when it was provided for in accordance with the legislation of the EAEU member States or the provisions of the CU Customs Code; (ii) when customs duties had already been paid or when the amount owed was less than EUR5; (iii) when goods were exempted from customs duties during the period of validity of such an exemption and when fulfilling the conditions, under which such exemption was granted; (iv) when goods were placed under customs procedures (regimes) not providing for such payment; (v) when the total customs value of goods imported by one person on one invoice did not exceed €200; (vi) when goods had been destroyed or irretrievably lost as a consequence of an accident, force majeure, or as the result of natural deterioration under normal transportation and storage prior to their release; (vii) when goods had been converted into property of a member State in accordance with its national legislation; and, (viii) when goods were not released.

322.  The representative of Kazakhstan added that Annex No. 6 to the EAEU Treaty and the relevant provisions of the CU Customs code provided that for the list of exemptions from the customs tariff rates, the following categories of goods were exempt from import customs duty(i) means of transport of international shipments of freight, baggage and passengers, and goods that maintained them; (ii) products of fishing operations owned or leased by natural and juridical persons of the EAEU member States; (iii) goods imported for official or personal use by third countries' diplomats; (iv) currency and securities in accordance with the  national legislation of the member States; (v) goods imported as humanitarian or disaster aid; (vi) goods imported as assistance (including technical assistance) and charity from third countries and international organizations; (vii) goods covered by import customs regimes which called for such duty exemption; (viii) goods imported by natural persons for their own use, in accordance with customs regulation legislation; and, (ix) goods subject to Government expropriation by the member States as provided for in their legislation.  Tariff exemptions could also be provided in other cases established by the EAEU Treaty, international agreements of the EAEU with third parties and acts of the Commission.

323.  Tariff exemptions in cases not stipulated in Annex No. 6 to the EAEU Treaty were applied only by the Commission decisions based on consensus.  CU Commission Decision No. 130 approved tariff exemptions applied by the EAEU member States apart from tariff exemptions stipulated in Annex No. 6 to the EAEU Treaty.

324.  The EEC was authorized by the EAEU Treaty and Decision of the EurAsEC Interstate Council No. 18 to operate the CET, including the authority to add or remove goods from the list of exemptions.  A consensus vote was required, if an EEC Decision concerned changes in customs duty levels on goods included into the List of sensitive products, or where the decision on granting of tariff exemptions was taken.

325.  She added that, in accordance with Article 2 of the Protocol on Exceptions from the CET, the EEC could decide that a higher duty rate than the CET would be applied by one of the EAEU member States in case if such a measure was a necessary condition for development of the relevant industry of that member State.  A lower duty rate would be applied in the following cases:  (i) the concerned member State faced critical shortage of goods; (ii) such a measure was necessary to address the social needs of the population for the concerned member State; or (iii) to address the needs of industries, which depended largely on imports from third countries and could not be replaced with the production of supplementary or similar goods produced in the EAEU.  Article 4 of the Protocol on Exceptions from the CET provided that the EEC Decisions, in these cases, were adopted by consensus and that a different tariff rate by one member State could be applied for no longer than six months, unless extended, following the relevant procedures foreseen in the Protocol on Exceptions from the CET

326.  A Member asked if there was a process for third parties to challenge such exceptions from the CET.  The representative of Kazakhstan stated that the EEC took a decision on application of a higher or lower tariff rate upon proposal by an EAEU member State, provided that such measure was justified and other EAEU member States did not agree to change the CET tariff rate.  She added that exceptions from the CET applied in "exceptional circumstances" should be based on an MFN principle and should not be higher than the import duty bound rates committed by any member State upon accession to the WTO.  Therefore, Kazakhstan did not see a basis for challenging the exceptions by third parties. 

327.  CU Commission Decision No. 130 had initially included a list of 409 tariff lines, towards which Kazakhstan applied import customs duty rates different from the CET during various transitional periods of up to five years.  Subsequently, taking into account that for some goods the transitional periods had already expired, as well as due to difficulties with monitoring the movement of goods across the border after the formation of a common customs territory and the removal of customs border checkpoints between the Russian Federation and the Republic of Kazakhstan as of 1 July 2011, the list had been revised and significantly reduced down to 72 tariff lines (see Annex 11 of this Report).  These exemptions expired on 1 January 2015.

328.  She further added that CU Commission Decision No. 130 allowed duty‑free importation of raw cane sugar (HS 1701 11) in 2010-2019 for processing in sugar‑processing plants on the territory of the Republic of Kazakhstan.  Raw cane sugar could be imported only upon obtaining a permit from the authorized body of Kazakhstan (the Ministry of National Economy).  The permit prescribed the end-use of raw cane sugar.  The raw cane sugar and white sugar produced from such raw cane sugar could not be exported to the territories of other member States.  Government Resolutions No. 146 "On Certain Issues of Importation of Sugar and Raw Sugar to the Territory of the Republic of Kazakhstan" of 1 March 2010 and No. 34 "On Certain Issues of Importation of Raw Sugar to the Territory of the Republic of Kazakhstan" of 26 January 2011 determined the duty-free quota for imported raw cane sugar for 2010 and 2011, respectively, and approved the list of sugar producers to which the quota was allocated. 

329.  The representative of Kazakhstan noted that in case an EAEU member State defined individual beneficiaries of a tariff exemption, this member State had to present to the EEC its proposals on the control mechanism over the use of the imported goods with a view to preventing their misuse and release into free circulation on the territory of other member States.  The exemption was granted by approval of the EEC.

330.  A Member enquired about Government Resolutions Nos. 668 and 1092.  In particular, this Member asked Kazakhstan to specify the goods falling within the scope of Government Resolutions Nos. 668 and 1092 and clarify the terms of the 3% charge per month on other temporary goods:  if this was 3 percentage points of the total tariff level or 3% of the duties that would have been collected and if the total charge applicable capped at the amount of the normally payable duty.  This Member also asked if this covered "trade in transit" or if "temporary importation" was a separate customs regime from transit.  In reply, the representative of Kazakhstan said that Government Resolutions No. 668 and No. 1092 were no longer in force.

331.  She further explained that goods temporarily imported to Kazakhstan (i.e., subject to subsequent exportation) could be exempt from customs duties and taxes, either in whole or in part.  The list of temporarily imported goods fully exempt from payment of customs duties and taxes had been approved by CU Commission Decision No. 331 and included the following groups of goods:  (i) containers and other returnable containers; (ii) goods imported to assist foreign trade and international cooperation; (iii) goods temporarily imported for application in science, culture, cinematography, sports and tourism; (iv) goods imported for humanitarian aid; and (v) other goods.  While goods falling within the scope of CU Commission Decision No. 331 were fully exempt from payment of duties, other temporarily-imported goods as stipulated in Article 282 of the CU Customs Code were subject to a fee of 3% of the amount of the import customs duty and taxes payable, that would have been collected if the goods were released for domestic consumption, for each month the goods remained on the customs territory of the EAEU.  The term of temporary importation was determined by the customs body on the basis of the objectives and circumstances of the importation, and could not exceed a period of two years from the date when the goods were placed under the customs procedure of temporary importation.  The term of temporary importation could be extended beyond two years at the written request of an applicant.  To conform to the provisions of the temporary importation procedure, goods had to remain unchanged during the period of temporary importation.  The total charge applicable capped at the amount of the normally payable duty.  She added that the provisions established for the customs procedure of "temporary import of goods" did not extend to the customs procedure of "transit of goods".

332.  The representative of Kazakhstan added that CU Commission Decisions No. 130 and No. 331 granted certain tariff exemptions for imported civil aircraft (for more details, see Chapter IV "Policies Affecting Trade in Goods", Section C "Internal Policies Affecting Foreign Trade in Goods", Sub-section "Trade in Civil Aircraft" of this Report). 

333.  The representative of Kazakhstan informed Members that Kazakhstan did not apply any other tariff exemptions than those described in this and other relevant Sections of this Report.

-       Tariff Rate Quotas

334.  Some Members considered that the introduction of tariff rate quotas (TRQs) had been a step backward from the trade liberalization that should be expected from the country acceding to the WTO and that, in their view, a tariff‑only regime would be preferable as it would allow for the market to select suppliers that provided the best combination of price, quality, and stable offer of goods.  They requested a description of the current and prospective legal authority for introducing TRQs and determining the rules for allocating quota among importers as well as any related licensing procedures in Kazakhstan and in the EAEU. 

335.  The representative of Kazakhstan said that Article 44 "Tariff Rate Quotas" (TRQs) and Part III of Annex No. 6 "Protocol on Common Customs and Tariff Regulation" of the EAEU Treaty provided the general legal framework for the introduction of TRQs in the EAEU member States, including KazakhstanThe national legislation included Law No. 544-II "On Regulation of Trade Activity" of 12 April 2004 (hereinafter: Law No. 544-II) and other measures adopted on the basis of the EAEU legal acts. 

336.  The representative of Kazakhstan added that, pursuant to paragraph 2 of Part I of Annex No. 6 to the EAEU Treaty, a tariff rate quota was a measure of control over the importation into the customs territory of the EAEU of certain kinds of agricultural products originating in third countries applied within a fixed period of time.  Such measures provided for application of differentiated rates of the CET with regard to goods imported within the established volume (in kind and in value) within a fixed period of time and in excess of that volume.  The criteria for introduction of TRQs were provided for in Article 44 of the EAEU Treaty.  TRQs could be introduced for agricultural products originating in third countries if the like goods were produced (extracted, cultivated) on the customs territory of the EAEU.  Pursuant to this Article, volumes of imported goods exceeding quota levels were levied at rates of the CETBetween 2010 and 2012, the CU Commission had allocated TRQs on an annual basis among the member States based on proposals from the member States.  Starting from 1 February 2012, the member States delegated this authority to the EEC.

337.  CU Commission Decision No. 865 of 18 November 2011 had approved the list of products subject to TRQs (beef, pork and poultry), had allocated TRQs, and had fixed the volumes of TRQs for importation of these goods to the territory of each member State for 2012.  Resolution of the Government of Kazakhstan No. 269 "On Certain Issues of Allocation of Tariff Rate Quotas Volumes for Importation of Certain Kinds of Meat" of 24 March 2011 (hereinafter: Government Resolution No. 269) had approved the rules for allocation of TRQ volumes among suppliers.  Kazakhstan had not applied any TRQs to imports before 2010.

338.  In accordance with paragraphs 7 and 8 of Part III of Annex No. 6 to the EAEU Treaty, the method of TRQs allocation among participants of foreign trade activities (suppliers) had to be non‑discriminatory with respect to the form of ownership, place of registration or market share.  The EEC, when taking a decision on application of TRQs to agricultural products, had to observe the following terms:  (i) TRQs had to be established for a specific period of time; (ii) if TRQs had to be distributed among third countries, all the interested third countries had to be duly informed of the allocated TRQ volumes; and (iii) information on the establishment of TRQs, its global volume and duration, in-quota import duty rates, as well as on the distribution among third countries had to be published. 

339.  According to paragraphs 5 and 6 of Part III of Annex No. 6 to the EAEU Treaty, the TRQ volume established by the EECon imports of goods into the customs territory of the EAEU could not exceed the difference between the volume of consumption and production of the like product on the customs territory of the EAEU.  If the production volume of the like product was equal to the volume of consumption on the customs territory of the EAEU, or exceeded it, TRQs could not be established.  However, if the production volume of the like product was equal to the volume of consumption of the product or exceeded it in one of the EAEU member States, such difference was not considered when allocating the TRQ volumes for the customs territory of the EAEU. 

340.  The representative of Kazakhstan further explained that customs clearance of goods subject to TRQs had to be made in the EAEU member State where the supplier received its TRQ share.  The goods had to be accompanied with an original licence issued by the authorized government body, the Ministry of National Economy of the Republic of Kazakhstan.  In this context, she noted that Annex No. 7 "Protocol on Non-Tariff Regulation Concerning Third Countries" to the EAEU Treaty contained provisions on the licensing procedure.  Licenses were issued within 15 working days from the date of submission of the following set of documents:  (i) an application for a licence; (ii) an electronic copy of the application; (iii) a copy of a foreign trade agreement (contract); (iv) a copy of the registration document in tax authorities; and, (v) a document confirming payment of a licensing fee.  The set of documents for a licence had to be submitted to the Ministry of National Economy of the Republic of Kazakhstan.  Licenses remained valid until the end of the calendar year in which they were issued. 

341.  The EEC had also determined that the TRQs in the EAEU member States were to be administered by the governments of the EAEU member States in accordance with their respective national legislation.  In Kazakhstan, TRQs were regulated by Law No. 544-II and Government Resolution No. 269. Government Resolution No. 269 approved the rules for allocation of volumes of TRQs between suppliers, which provided for allocation based on the "historical principle", i.e., allocations proportionate to the volume of imports in the previous period.  She stated that Government Resolution No. 269 also contained the following definitions:

(i)         TRQ volume - the volume of imported goods determined by the Government of Kazakhstan annually which were subject to the in-quota import duty rate;

(ii)        participants of foreign economic activities (suppliers) – natural or juridical persons that had been importing beef, pork or poultry during the previous period in accordance with the following criteria:  it had been importing beef, pork or poultry (i) from the country‑suppliers; (ii) in volumes not less than 25 kg during the year prior to the year of TRQ establishment; and, (iii) during the year prior to the year of TRQ establishment;

(iii)       the previous period – two years prior to the year of TRQ establishment;

(iv)       country-suppliers - the countries that had no free trade agreements with the EAEU member States or had exemptions from the free trade regime with regard to beef, pork or poultry under TRQs; and,

(v)        the supplier's import volume - the actual volume of beef, pork or poultry under TRQs imported by the supplier from the country-suppliers, which was determined on the basis of foreign trade statistics.

342.  Some Members expressed concern that the TRQ regime that Kazakhstan applied under the EAEU, did not appear to allocate any in-quota volume to new entrants.  As the representative stated above, it appeared that a new importer entering the market had to import at the over‑quota rate which acted to limit the quantity of imports.  Thus, in subsequent years, this importer would qualify only for a small in-quota allocation, since allocations were based on imports over the previous year.  In these Members' view, this did not provide sufficient flexibility in the market.  These Members further emphasized that allocating TRQs only to historical suppliers could be problematic as some suppliers were no longer participants in the market.

343.  The representative of Kazakhstan stated that Resolution of the Government of the Republic of Kazakhstan No. 1189 "On Certain Issues of Allocation of Volumes of Tariff Rate Quotas on Imports of Certain Kinds of Meat" of 8 November 2013, had introduced the mechanism of allocation of TRQs for new suppliers.  Pursuant to this Resolution, the volumes of TRQs were allocated among new suppliers in the order of priority of application for new suppliers for import licenses.  Import licenses were issued by the authorized body in the field of regulation of trade activity until exhaustion of volumes of TRQs established for new suppliers.  She also noted that allocation of the in-quota volume per supplier should not exceed 15% of the total volume of tariff rate quota established for new suppliers.

344.  In response to a specific question regarding the "economically viable quantities", the representative of Kazakhstan explained that in calculation of the share of historical suppliers within the total volume of imports during the two preceding years, all supplies exceeding 25 kg were taken into account.  Thus, TRQs were allocated between historical suppliers in proportion to the shares determined based on mathematical formulae.  Suppliers could annually apply for the in‑quota volume not exceeding their yearly share within the in-quota volume annually established by the Government.  Therefore, in her opinion, the TRQ allocation mechanism established by Government Resolution No. 269 was fully consistent with the provisions of the WTO Agreement on Import Licensing Procedures. 

345.  The representative of Kazakhstan further stated that in accordance with the rules approved by Government Resolution No. 269, TRQ volumes for beef, pork or poultry were allocated in two stages:  at the first stage , annually by 31 December of the year preceding the year when a TRQ entered into force, 25% of the total annual TRQ volumes were allocated among suppliers according to the formula; and at the second stage , annually by 1 April of the year when a TRQ entered into force, 100% of the total annual TRQ volumes were allocated according to the formula, which deducted the TRQ volume allocated during the first stage.  TRQs for imports of beef, fresh or chilled (HS Code 0201) were allocated on a "first come, first served" basis.  The formulae used for allocation of TRQ volumes between suppliers, are provided in Annex 12 of this Report. 

346.  The representative of Kazakhstan recalled that TRQ volumes were determined on an annual basis.  She stated that CU Commission Decisions No. 505 of 18 November 2010 and No. 865 of 18 November 2011 had allocated TRQs for beef, pork and poultry, and had established the TRQ volumes for each member State in 2011 and 2012, respectively.  The TRQ volumes established for Kazakhstan had been the same in 2010 and 2011.  In 2012, TRQ volumes for beef and pork had been increased.  EEC Decision No. 229 "On the List of Products, with respect to which Tariff Rate Quotas, and the Volumes of Tariff Rate Quotas to the Territories of the member States of the Customs Union and the Single Economic Space for 2013 are Established" of 20 November 2012, had introduced a tariff rate quota on milk whey and established TRQ volumes for 2013.  EEC Collegium Decision No. 242 "On the List of Goods  with respect to which Tariff Rate Quotas, and the Volumes of Tariff Rate Quotas for Imports to the Territories of the member-States of the Customs Union and the Single Economic Space for 2014 are Established" of 29 October 2013 had provided for TRQ volumes for 2014.  The TRQ volumes for 2010-2014 are provided in Table 1. 

Table 1:  TRQ Volumes for 2010 – 2014

HS Code

Product Name

TRQ volumes for 2010 – 2014, thousand tonnes

2010

2011

2012

2013

2014

0201

Beef, fresh or chilled

0.02

0.02

0.02

 

15.4

0.02

0202

Beef, frozen

10.0

10.0

13.9

15.3

0203

Pork

7.4

7.4

9.4

9.7

9.7

0203 29 550 2,

0203 29 900 2

Pork trimmings

0207

Poultry

110.0

110.0

110.0

110.0

110.0

347.  A Member expressed concern regarding delays in allocating the 2012 TRQ volumes and that these delays were precluding trade.  This Member reported that according to industry sources, the Government Resolution allocating the quota volumes had not been signed.  The Member requested information on when the Resolution would be signed and requested that the situation be resolved quickly to allow for trade.  Further, the Member requested assurances that these types of delays would not occur in the future.  The representative of Kazakhstan replied that Government Resolution No. 1085 on allocated TRQ volumes for the year 2012 had been adopted on 24 August 2012.  The delays were caused due to problems related to the accuracy of customs statistics.  She further stated that in accordance with Law No. 239-V "On Amendments and Addenda to Certain Legislative Acts of the Republic of Kazakhstan on the Issues of Delimitation of Competence between the Levels of Public Administration" of 29 September 2014, the substantial part of state decision-making authority had been delegated from the level of the Government to the central and local executive bodies.  Thus, the Law delegated to the body responsible for regulation of trade activities the authority to establish TRQs on imports and/or exports of certain kinds of goods, determine allocation methods and procedures, the volume and period of application of TRQs.  The representative of Kazakhstan recalled that the Ministry of National Economy of the Republic of Kazakhstan was the authorized body for allocation of volumes of tariff rate quotas and for issuing import licenses for beef, pork or poultry under TRQs.  Decision on allocation of volumes of tariff rate quotas was adopted by the Decree of the Minister of National Economy that reduced the timeframes for TRQ allocation.  The State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan had to report to the Ministry of National Economy quarterly on the actual volume of imported beef, pork and poultry, respectively.  The procedure and mechanism of allocation of tariff rate quotas remained the same, as described in paragraphs 341, 343, 344, 345 and 346 of this Report.  

348.  A Member expressed concern regarding the imposition of TRQs for poultry products and stated that imposition of new trade restrictions during the course of WTO accession was contrary to the general principle of standstill with regard to trade restrictions during accession negotiations.  In reply, the representative of Kazakhstan stated that production of poultry was one of the key segments of agricultural sector in Kazakhstan, which provided thousands of jobs in rural areas.  Hence for Kazakhstan, it was important to preserve the right to apply TRQs on poultry.  She noted that Kazakhstan had been working closely with Working Party Members in order to elaborate a mutually acceptable solution.

349.  In response to a question from a Member, the representative of Kazakhstan explained that the TRQ mechanism set-out in Section I-B of Part I of the Schedule of Tariff Concessions and Commitments on Goods of Kazakhstan contained the information on in-quota tariff rates and quantities eligible for the in-quota tariff rates for TRQs for beef, pork and poultry.  The representative of Kazakhstan further explained that currently Kazakhstan did not allocate country-specific TRQs.  Therefore, TRQs were allocated on the basis of the "historical principle" among suppliers - residents of Kazakhstan - proportionally to the volume of the goods imported in the previous period.  Thus, at this time, Kazakhstan had no need for a reallocation mechanism and did not have one in place. 

350.  One Member emphasized that the WTO Agreement on Import Licensing Procedures required that in the administration of quotas by means of licensing, quota allocations make provision for new entrants to the market and the issuing of licences for imports in commercially viable quantities.  This Member stated that provision also needed to be made for the reallocation of unused quantities of the TRQs by the original recipients of the licences in the cases of country specific allocations.  This Member stated that Kazakhstan should establish a mechanism to allow for access to the TRQs by new entrants, that ensured that allocated amounts were commercially viable, and that dealt with the issue of reallocation of unused quota designations to ensure full utilization of the TRQs when allocations were made on a country-specific basis

351.  The representative of Kazakhstan confirmed that from the date of accession of Kazakhstan to the WTO, import TRQs applied in Kazakhstan would be administered, whether by the competent bodies of the EAEU or by authorities of Kazakhstan, in a manner that was consistent with the GATT 1994 and other relevant WTO Agreements, including the Agreement on Import Licensing Procedures and the Agreement on Agriculture.  She further confirmed that, in implementing TRQs, Kazakhstan would provide opportunity for new entrants seeking access to in-quota allocations under the TRQs, and would provide for allocations under the TRQs in economic quantities as provided for in paragraph 5 of the "Understanding on Tariff Rate Quota Administration Provisions of Agricultural Products, as Defined in Article 2 of the Agreement on Agriculture"[14].  In case, if Kazakhstan decided to allocate TRQs on a country‑specific basis, it would provide for a transparent, predictable and timely reallocation mechanism that allowed for full utilization of TRQs by WTO Members.  The Working Party took note of these commitments.

-       Fees and Charges for Services Rendered

352.  The representative of Kazakhstan informed Members that Article 72 of the Customs Union (CU) Customs Code left the authority for the application of customs fees to the EAEU member States.  In Kazakhstan, customs fees and charges currently were regulated by the Code of the Republic of Kazakhstan No. 296-IV "On Customs Issues in the Republic of Kazakhstan" of 30 June 2010 (hereinafter: Customs Code of Kazakhstan) and Government Resolution No. 24 "On Adoption of Rates of Customs Fees Levied by Customs Bodies" of 21 January 2011.  Government Resolution No. 669 "On Adoption of Rates of Customs Charges, Charges and Fees Levied by Customs Bodies" of 8 July 2003 was no longer in force. 

353.  The representative of Kazakhstan further noted that before adoption of the Customs Code of Kazakhstan, which had entered into force as of 1 July 2010, customs fees had been levied for (i) customs clearance; (ii) customs escort of goods; and (iii) customs warehousing of goods.  Fees also had been levied for issuing preliminary decisions on the classification of goods and the methodology used for identifying the origin and customs value of goods.  In accordance with Article 116 of the Customs Code of Kazakhstan, customs fees were levied only for (i) customs clearance at the time of declaration of goods; (ii) customs escort of goods; and (iii) issuing preliminary decisions. 

354.  The Customs Code of Kazakhstan had abolished the old customs clearance fee levied at 0.2% of the customs value.  Customs clearance fees and customs escort fees applied in accordance with Government Resolution No. 24 "On Adoption of Rates of Fees Levied by Customs Bodies" of 21 January 2011, which established customs clearance fees levied at the time of declaration in fixed amounts (euro ) per declaration and levied customs escort fees on the basis of distance.  The methodology used for calculating customs escort fees included travel expenses of customs officials, costs of fuel for transportation, and depreciation costs of vehicles, and it did not cover the salaries of customs officials.  In her view, the fees were calculated on the basis of the actual cost of services rendered and therefore were in conformity with Article VIII of the GATT 1994.  Customs fees levied for customs declaration of goods, customs escort, and issuing of preliminary decisions were paid to the budget and were non-refundable.

355.  The customs clearance of goods (and vehicles) in Kazakhstan included: (i) registration of a customs declaration; (ii) verification of the application of tariff and non-tariff regulations; (iii) verification of accuracy of the declared customs regimes (such as customs transit, customs warehouse, etc.) with customs requirements; (iv) administration of customs fees; (v) determination of customs value; and, (vi) classification of goods for the purpose of customs examination and customs expert evaluation.  According to paragraph 3 of Article 115 of the Customs Code of Kazakhstan, the amount of customs clearance fees levied could not exceed the actual costs incurred by customs bodies during the customs clearance process.  Customs clearance fees were set based on the customs declaration at €60 for the main list of goods in the customs declaration, and at €25 for every additional list, in case of declaring more than one type of goods at once.  Pursuant to Article 120 of the Customs Code of Kazakhstan, customs clearance fees had to be paid before or at the time of submission of the customs declaration.  The fee for issuing preliminary decisions on the classification of goods and the origin of goods by the customs bodies was set at €70 and had to be paid before the issuance of such decisions.  In response to a specific question from a Member, the representative of Kazakhstan confirmed that Kazakhstan applied a fixed fee for all customs clearance activities irrespective of the type of good, clearance place, time and transportation mode.

356.  In response to a question from a Member, the representative of Kazakhstan confirmed that only transit escort fees were levied on the basis of distance.  According to Article 322 of the Customs Code of Kazakhstan, customs escort was a measure used by the customs bodies or other organizations stipulated by the legislation of Kazakhstan to convey goods in accordance with the customs procedure of the customs transit.  The customs bodies could authorize this procedure in cases: (i) determined on the basis of the risk management system; (ii) when customs duties and taxes had not been paid or had not been paid in full; (iii) when the carrier had repeatedly failed to fulfil duties with regard to the delivery of goods in accordance with the customs procedure of customs transit; and, (iv) as provided for in international agreements to which the Republic of Kazakhstan was a party. 

357.  The customs escort was initiated no later than within 24 hours of the time the customs bodies made the decision on the need for customs escort.  Customs escort fees were calculated on the basis of the distance between the customs point of departure of the goods to the customs point of destination (e.g., ranging from €11 for a distance of up to 50 km to €878 for a distance of over 2,000 km).  The methodology for calculation of customs escort fees is provided in Annex 13 of this Report.  The fees charg