National Report Kyrgyzstan /
CENTRAL ASIA TRADE AND TRANSPORT FACILITATION AUDIT
NATIONAL REPORT
KYRGYZSTAN
Initiated by:
The Worldbank, USA
Written by:
NEA Transport research and training, The Netherlands
Our reference:
(D20020469\23060)
Status: Draft
March 2003
CONTENTS
Page
1Introduction......
2Trade trends, transport flows and infrastructure......
3Ongoing reform process......
4Trade, transport and customs practice......
5Key impediments in trade and transport.......
6Trade and transport action plan......
Annex 1Major technical assistance and investment projects
1Introduction
The study
This is the country report for Kyrgyzstan in the framework of the Central Asia Trade and Transport Facilitation Study. The project has been financed by the World Bank and commissioned to NEA Transport research and training in The Netherlands.
Main objectives of the study are to:
- Identify and describe the main impediments in the domain of trade and transport facilitation to increased international trade for Central Asian countries
- Formulate priority actions to be taken by Central Asian governments to remove these impediments
During the project three experts on transport and logistics of NEA have been traveling through Central Asia, visiting Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan. Each country has been visited by one expert for at least one week. During this week numerous meeting have been arranged with the Government and the business circles.
The project has resulted into one Synthesis Report and a Country Report for each of the Central Asian states. The result was only possible thanks to the excellent support of the World Bank including its regional offices, and the people whom contributed during all the meetings that were organized in Central Asia. We are grateful that we were able to work with them. This report has been elaborated by Arthur Gleijm (team leader), Harrie de Leijer, Menno Langeveld and René Meeuws, in co-operation with experts from MNT Consulting in Kyrgyzstan.
Kyrgyzstan
A land-locked country, Kyrgyzstan lacks access to foreign markets and is very dependent on its neighbors, even more so than the national economy of this small country relies on international trade.
This report
After this introduction this Country Report consists of a chapter on trade trends, transport flows and the infrastructure. The third chapter is devoted to the ongoing reform process. Chapter 4 introduces the country’s trade, transport and customs practice. Key impediments in trade and transport are presented in chapter 5. The Country Report is finalized with a trade and transport action plan. In annex 1 the interviewed stakeholders are interviewed while annex 2 consists of the major technical assistance and investment projects.
2Trade trends, transport flows and infrastructure
Economic background
Agriculture is the backbone of the Kyrgyz economy, and accounts for 50% of employment. The main agriculture products are grain, followed by vegetables, cotton and tobacco. The recovery of agricultural production since the mid-1990’s has been a major contributor to economic growth, but the domestic market is small, and access to foreign markets is problematic, thus endangering this positive trend. Exports have started to decline. Apart from logistics problems, much will depend on diversification and the development of a food processing industry.
The industrial sector is dominated by mining and metallurgy, which makes an important contribution to the economy with more than 20% of GDP. The country has substantial coal deposits, not yet exploited. The most important sub-sector is gold mining and processing, which is also the only sector to have attracted foreign investments.
The following table shows that exports to the traditional markets of Kyrgyzstan (Central Asia – essentially Uzbekistan, Russia, and China) tend to drop. Russia is still the major market for agricultural goods (over 80 percent of the total production), but all other Central Asia countries compete on this market, and transport through Kazakhstan has become extremely expensive. These outlets are therefore now virtually closed. Intra-regional trade is also regressing (by 10 percent over the past three years). Although foreign trade with the EU and the US is increasing, it does not yet compensate.
Trends in trade between 1995-1999
China / Russia / Europe / USA / Intra-regional / CaucasusKyrgyz Rep
Imports / / / / / /
Exports / / / / / /
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/ Central Asia Trade & Transport facilitation Study National Report KyrgyzstanMain export products Kyrgyzstan in 2000 (in tons)
ProductDestination country / Coal
(1,7%)¹ / Grain and Cereals
(1,5%) / Fertilizers
(57%) / Cement
(6,4%) / Other Construction materials
(5,6%) / Scrap Metal
(6,5%) / Cotton
(2,4%) / Machinery and Equipment
(3,2%) / Products of animal origin
(1,6%) / Agriculture Products
(10,4%)
Uzbekistan / 18.386 / 4.089 / 802.462 / 640 / 34.148 / 881 / 0 / 3.421 / 0 / 128
Kazakhstan / 0 / 499 / 2.016 / 87.825 / 35.588 / 278 / 0 / 3.231 / 4.613 / 56.612
Tajikistan / 1.407 / 1.826 / 33 / 1.647 / 4.270 / 0 / 0 / 2.458 / 2 / 1.523
Turkmenistan / 0 / 0 / 0 / 0 / 3.957 / 40 / 0 / 696 / 0 / 100
Russia-Asia / 4.380 / 82 / 3.320 / 0 / 872 / 401 / 12.368 / 8.389 / 146 / 74.612
China / 0 / 0 / 0 / 0 / 77.073 / 659 / 1.051 / 9.466 / 330
Afghanistan / 0 / 14.721 / 0 / 112 / 1 / 5.379 / 0 / 4.854 / 272 / 332
Sub total, in tons² / 24.173 / 21.217 / 807.831 / 90.224 / 78.836 / 84.052 / 13.027 / 24.100 / 14.499 / 133.637
Total export to all countries, in tons / 24.173 / 21.223 / 808.074 / 90.225 / 79.147 / 91.394 / 34.552 / 46.029 / 23.362 / 147.553
Source: TRACECA Statistics
¹ = only the 10 main export products are listed here. The percentage is based on all export products to all countries
² = export of one of the main 10 export products to the 4 Central Asia countries and the top 3 of other export countries
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/ Central Asia Trade & Transport facilitation Study National Report KyrgyzstanMain import products Kyrgyzstan in 2000 (in tons)
ProductOrigin country / Coal
(38,1%) / Petroleum Products
(17,7%) / Grain and Cereals
(12,4%) / Fertilizer
(9,3%) / Other Chemical products
(2,2%) / Cement
(2,7%) / Other ferrous and non-ferrous metals
(2,2%) / Textiles and its wares (other than cotton)
(2%) / Machinery and equipment
(2%) / Food Stuff
(1,8%)
Kazakstan / 745.288 / 87.136 / 133.927 / 139.358 / 4.682 / 1.570 / 8.176 / 59 / 1.403 / 4.242
Tadjikistan / 0 / 2 / 0 / 477 / 107 / 0 / 270 / 104 / 104 / 0
Turkmenistan / 0 / 75.264 / 0 / 850 / 64 / 0 / 65 / 14 / 5 / 0
Uzbekistan / 0 / 121.470 / 6.857 / 9.886 / 2.182 / 50.423 / 764 / 296 / 615 / 526
Russia-Asia / 6.196 / 55.210 / 1.852 / 32.497 / 19.550 / 315 / 27.508 / 558 / 14.668 / 20.306
Nth-America / 0 / 110 / 95.397 / 2 / 443 / 0 / 7 / 10.733 / 1.708 / 19
China / 0 / 0 / 2.702 / 179 / 6.640 / 0 / 3.642 / 17.201 / 1.936 / 1.137
Sub total², in tons / 751.484 / 339.671 / 240.735 / 183.249 / 33.668 / 52.308 / 40.432 / 28.052 / 20.439 / 26.230
Total import from all countries, in tons / 751.484 / 348.671 / 244.297 / 183.592 / 43.104 / 52.310 / 43.387 / 39.052 / 39.213 / 35.791
Source: TRACECA Statistics
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Infrastructure and transport routes
Railways
The total rail track is 428 kilometers, of which 320 kilometers are of single track.
Only because of low traffic density for the moment the condition of the network and the loading capacity may be considered adequate, although some parts of the tracks are deteriorated leading to speed limitations. Container transportation is only starting, and in need of handling facilities and terminals.
Road
The classified inter-city road network is 9,834 kilometers long and includes 4,156 kilometers of national roads and 5,678 kilometers of regional roads. Only 40% (including local roads) of the total network is paved. At all levels roads have been deteriorated and 60% of the network requires urgent rehabilitation. Because of a lack of funding local roads in particular were left unattended. Due to the deteriorated roads in combination with bad weather conditions, Kazakhstan is hardly accessible for transit during many months of the year. For the same reasons Chinese cargo enters Kyrgyzstan directly only in summer, and must make a detour through Kazakhstan. The major international road arteries pass through the territory of Kazakhstan. These connections are crucial to the Kyrgyz economy, especially to ship out agricultural products to Russia. At the same time, Kyrgyzstan is looking towards the east for the solution of its transit problems, and to enter new markets An alternative route via the territory of China and Mongolia to reach Russia is being studied. Kyrgyzstan is also accessible for small consignments of Chinese goods and both Uzbek and Tadjik traders come to Kyrgyzstan to buy them.
Japan is reached via the Trans-Siberia rail and transit through China.
The route to the West, via the Caspian Sea, requires transit through Uzbekistan, with related difficulties for Kyrgyz transporters. The port of Aktau is difficult to reach because there is no convenient access road. Transporters are also reluctant to use the Caucasus, on grounds of (possibly over-emphasized) security problems. The more southern route, via Iran and Turkey, is reportedly easier for Kyrgyz vehicles.
Performance indicators
The road transit costs through Kazakhstan amount to $ 1000 per trip. It is estimated that 15 to 25% of these costs consists in delays at the borders and inland, and additional payments for which no services are rendered.[1] For some agriculture products it is estimated that the transportation costs is equal to 30 to 50% of the value of the cargo.
Transport
Transport demand has fallen since 1990. In 2001 freight transport by road was only 20% and by rail only 13% of their 1990 level. Because of this crisis, vehicles leave Kyrgyzstan empty, in search of cargo. Road transport accounts for about 87% and railways for 13% of shipping Kyrgyz exports while about 78% of the imports were shipped by rail and the rest by road. An estimated 650 trucks transited Kyrgyzstan in 2001.
A permit free system was agreed in 1998 for bilateral and transit transport, under the Eurasia Economic Community, with Byelorussia, Russia, Kazakhstan, Kyrgyzstan and Tajikistan. It has not yet been ratified by Kazakhstan. 3 years ago, Kazakhstan, Kyrgyzstan, China and Pakistan agreed to develop the road corridor to the ports in Pakistan. So far this agreement has not been implemented.
Modal split
Rail transport is competitive in terms of rates, especially for loads consisting of one commodity.
For certain urgent and perishable commodities road transport is the only option, while loss and damage is also less. Transport by road is much faster than by rail, with 10 to 15 days by road to Germany where the train trip may take 3 weeks. Due to unpredictable transit times companies have to increase their stocks to level that exceed the size required for the production process.
For specific commodities, air transport is preferred (at a transport cost of about $2,5 per kilo), and there are private initiatives to develop regular overseas air services.
Issues
- Most transport infrastructure was designed to serve the trade flows within the former Soviet Union. More emphasis should be put in developing the transport links with China and the corridors to ports in Iran, Pakistan and India. This situation generates an obligation to transit through Kazakhstan, where fees are sometimes excessive.
- Regional transport under Kyrgyz flag is complicated and faces serious discrimination. Due to procedural problems consolidation services of cargoes is not yet offered by the local transport operators. Only partly loaded containers and vehicles lead to increased transport costs. Transportation of cargo through Kazakhstan should be operated under a permit. Currently the amount of transit permits that Kyrgyzstan receives form Kazakhstan is far from enough. The 5000 permits received in 2001 were sufficient to meet demand, but this year only 1000 permits have been received. Also the transit fee of $ 300 charged by Uzbekistan is considered to be rather high. Besides this country introduced a visa system and applies very strict transit rules causing long delays at border points. As the traffic police also regularly stops the vehicles, it becomes unattractive to transport through Uzbekistan. Kyrgyzstan is even contemplating to build a by-pass – which would be longer than the current connection - between Osh and Jallabad, only to avoid these problems, which also cause social unrest in the country.
- The road fleet is not adapted. Most of the vehicles are small and do not meet international standards (only 50 Western style trucks). In particular, trucks for specific commodities, such as refrigerated goods, are badly required. The international road haulage has not been developed with about 3 international operators dominating the market.
- Kyrgyz road transport may enter China only until Kashgar, about 160 km from the border.
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3Trade and customs practice
Trade
Terms of trade and transport are often not clear and change regularly, and create problems for shippers. For international transport, major shippers tend to hire foreign transport operators, as the quality of their services is more reliable. For safety reasons these client also prefer to use containers, not yet widely in use among local carriers, who also lack high quality vehicles for refrigerated cargoes.
Kyrgyzstan joined the WTO In 1998, but, as neighboring Kazakhstan and Uzbekistan have not yet entered that organization, Kyrgyzstan cannot benefit fully from membership. Although Kyrgyzstan has established good ties with all neighboring countries, many of the conventions signed and bilateral or multi-lateral agreements reached on trade facilitation, are not implemented.
Customs policy and administration
The Kyrgyz Customs Administration (KCA) is placed under the Ministry of Finance. It collected in 2001 US$ 77 million, representing 40 percent of budget revenue. The KCA employs 1270 officials, who work in headquarters (150), or in field stations. There are seven Customs regions, each including one or several inland clearance terminals, and 40 border crossing points (of which 4 railway) and the idea is to reduce this number to 30. (This has to be negotiated with the local governments and the neighboring countries.) In 2001 the KCA processed nearly 60,000 import and export declarations for goods, and the annual number of travelers crossing the border is approximately 15,000.[2] The WB and USAID are assisting the Government in the development of a legal base for customs operations.[3]
The Customs tariff is arranged according to the Harmonized system (HS) nomenclature, and consists of four bands (0, 5, 10, 20), with a weighted average duty rate of 5 percent. In addition, Customs collect VAT (20 percent), excise duty, and a “Customs fee” of .15 percent of the value of the goods declared, which is destined to fund the modernization of the department. Since Kyrgyzstan joined the WTO, it is now only an observer at the Customs Union (other members are Russia, Belarus, Kazakhstan, and Tadjikistan). The Customs Union, very similar to the wider CIS regime, provides for zero duty between members, but has no external tariff.
A new Customs code was drafted last year, with technical help from USAID. It is based on the Russian Federation revised Customs law, and embodies principles from the revised Kyoto convention and the EU code. Although initially rejected by Parliament, Customs hope that it will be voted during the second quarter of 2002. Among major changes introduced by the new code are (i) a better definition of simplified clearance procedures, (ii) selective examinations, and (iii) a more trade-oriented interpretation of present regulations.
Customs clearance
The approach to clearance and general Customs operations gives the impression that the KCA is quite committed to modernization:
- The GATT code for valuation of goods is in force;
- The KCA has introduced the Single Administrative Document (SAD) as the standard declaration form, and all Customs documents in the CIS are unified;
- Data is shared with the Tax administration for VAT control purposes, and a Taxpayer Identification Number issued by the tax administration is in use;[4]
- The concept of selectivity for physical examinations is fully understood in headquarters, and risk assessment will be gradually introduced;
- Approved importers are entitled to simplified procedures, such as accelerated border processing and deferred payment of duty (subject to .3 percent interest), and direct clearance on the premises of importers is envisaged.[5]
- There is a streamlined system for settling out of court minor Customs violations.
However, a brief review of operations can give a different perspective.
4Key impediments in trade and transport.
There are no real Customs brokers
These who could overcome the lack of knowledge among the trade and transport industry.[6] So-called “Infrastructure staff”, originally hired and trained by Customs, have the monopoly for the preparation of declarations and act as obligatory intermediaries between importers and Customs. They also operate bonded warehouses and clearance sheds, for which they charge fees, and are responsible for the sale of unclaimed goods. According to Customs, neither the fees nor the proceeds of sales are paid into the State budget, yet the impression is somehow that Customs declarations are both prepared and checked by Customs personnel. Furthermore, the “Infrastructure staff” are not licensed, cannot be revoked, do not provide any financial guarantee, and have weak professional abilities. When importers badly need goods to be released, they have to accompany the work of Infrastructure staff, and this also creates additional opportunities for bribery. The FIATA bill of lading and other international documents are not yet fully in use.
Delays in clearance appear abnormally high, while traffic is limited.
Customs consider that goods can be cleared, when all documentation is in order, within three to four hours, but according to importers, it takes between three and five days at least to release any consignment, largely because of bureaucratic requirements: (i) All documents submitted to Customs must be translated (including very standardized internationally accepted forms, such as transit documents or certificates of origin); (ii) frequently required certificates of quality are delivered after numerous and lengthy administrative steps[7]; (iii) importers must provide for each operation the statutes of their company, a certificate from the bank, and a certificate of tax registration; and (iv) when payments are made through the bank (this is compulsory for sums exceeding US$400), there is an extra period of at least three days before Customs are advised of the payment and can release the goods. Costs related to delay are huge as the goods are charged for, depending on the type of commodity and weight, for each day under customs. Time may be lost during weekends, when the customs are closed.