wt/tpr/s/170 trade policy review page 42 - wto

WT/TPR/S/170 Trade Policy Review Page 42

III. TRADE POLICIES AND PRACTICES BY MEASURE

(1) INTRODUCTION

1. There has been substantial liberalization of the Kyrgyz Republic's trade regime during its economic transition. Tariffs have been reduced and many formal non-tariff barriers eliminated. Import bans and licensing are mainly to protect human health and safety, national security, and the environment, under international conventions. Licensing has been reduced substantially, and is generally automatic when imposed for other reasons, such as on imports of precious metals and stones, and alcoholic beverages. Import quotas, applied only to alcoholic drinks, appear largely non-restrictive.

2. The tariff, the main trade policy instrument, has been rationalized. The simple average applied MFN rate is 4.9%, down from 5.2% in 2005 (8.7% in 1999). Tariffs are generally higher on agricultural (8.1%) than industrial goods (4.1%) (WTO definition). The modal rate of 10% covers 34% of lines, and 59% are 5% or below (46% duty free). The number of bands has fallen from twelve in 1999 to six, and except for a few sugar items with rates of 20% and 30%, the highest rate is 15%. Rate disparities and escalation are relatively low, with few domestic and international tariff peaks. All but a few tariff lines are bound, at an average rate of 7.7%. This exceeds applied MFN rates, thereby enabling tariffs to be raised within existing bindings. A few tariffs exceed bound levels. Only a few rates are non-ad valorem (1.3%), thereby improving transparency, and only certain sugar imports have been subject to seasonal duties. Domestic commodity taxes (e.g. VAT) do not discriminate against imports, although the excise incidence may be higher on imported cigarettes. No anti-dumping, countervailing or safeguard measures have been applied. The tariff structure and its economic effects are complicated by substantial preferential imports and associated rules of origin.

3. Customs valuation is based on c.i.f. price using transaction values, and no preshipment inspection is required. Nevertheless, customs formalities and procedures, both formal and informal, as well as corruption, restrict imports (e.g. through duplicative and excessive physical inspections). Improved customs cooperation with neighbouring countries to facilitate trade is a government priority. Smuggling is substantial. A non-cost-based customs fee of 0.15% c.i.f. value is payable on all imports to cover costs of providing customs services. Foreign hauliers who do not have special permits or TIR carnets are charged a US$250 fee to enter the Kyrgyz Republic.

4. No state-trading enterprises have been notified, although they may exist (e.g. Kyrgyzalko/ Alkoprom’s production controls over alcoholic beverages, including mandatory majority joint venture requirements). This reduces transparency. Countertrade has been reduced substantially. The soviet-styled standards system is being transformed to a market-based regime. Standards, except for those containing technical regulations, are no longer mandatory. Such regulations are to be reviewed fully by 2009 and have already been reduced by 70%; they no longer apply to most services. There are some 20,000 standards, many inoperative. They are being revised and internationally harmonized, but progress is slower than planned, and only 38% are currently harmonized. Certification and recognition of overseas testing results has been improved, but still appear to restrict imports unnecessarily. Institutional arrangements for standardization, conformity assessment, certification, and testing are being reformed. SPS requirements have been simplified, but may still overly restrict imports.

5. Exports are largely unregulated. An export prohibition on treacle and a 100% export tax on wheat and flour no longer apply. Except for non-ferrous metal fragments and waste, licensing is mainly for public health and safety, and environmental protection. Other licences (e.g. for ferrous, precious, and rare-earth metals and fragments) are not intended to restrict exports. Free economic

Kyrgyz Republic WT/TPR/S/170 Page 43

zones have had mixed success, and while attracting some limited investment incur substantial domestic sales leakage, possibly without full taxation, and have promoted tax evasion. Only the Bishkek zone is to be retained. Transit restrictions by neighbouring countries, especially Uzbekistan and until recently Kazakhstan, impede Kyrgyz exports.

6. Government procurement has been opened and its use as a means of supporting domestic industry has fallen. Despite improved legislation, price preferences apply (20% on goods and 10% on works) based on minimum local content of 30%. The Kyrgyz Republic is negotiating membership of the WTO Government Procurement Agreement. Farmers receive minimal financial support, but water usage is heavily subsidized. Budgetary loans have been eliminated, but many enterprises have large accumulated outstanding government debt, which amounted to 15% of GDP in mid 2003.

7. The legal business framework, including licensing and registration, has been simplified, but remains cumbersome and greatly impedes business. The Presidential Council on Good Governance was put in place in 2004 but problems remain in this area, including corruption. Intellectual property rights have been strengthened, with the Kyrgyz Republic joining most international conventions, but weak enforcement, especially by customs, permits many formal pirated imports. Parallel imports are allowed. Privatization has been revitalized, but the most significant and politically more sensitive entities remain under state ownership (e.g. utilities), and to protect state monopolies, some activities cannot be privatized, e.g. gold and minerals. Competition policy is weak, reflecting mainly the existence of many sanctioned monopolies (natural and authorized). The autonomy of the National Agency on Anti-monopoly Policy is uncertain. Prices, apart from those of mainly utilities and transport, which are set by the agency, have been de-controlled.

(2) MEASURES DIRECTLY AFFECTING IMPORTS

(i) Customs procedures

8. The main legislation governing imports, the 2004 Customs Code, which replaced the 1997 Code, is aimed at raising customs collections by 20% and accelerating clearance. The Code strengthened the legal basis of customs, the procedures on customs control, clearance and enforcement, and introduced important changes to clarify operations of customs brokers and other intermediaries. Since its introduction, the Government has made significant progress in reducing deficiencies in customs administration; customs revenue grow from 0.5% of GDP in 2004 to 1.7% of GDP in 2005. The Kyrgyz Republic intends to accede to the Revised Kyoto Convention and, according to authorities, the 2004 Customs Code is in full compliance with its main principles and provisions. The Kyrgyz Republic joined the World Customs Organization (WCO) in 1997.1

9. The State Customs Inspectorate (SCI) is responsible for customs and, according to the authorities, it lacks resources. There have been no major recent changes in customs administration, although trade facilitation, especially involving customs and transit cooperation with neighbouring countries, is a government priority (Chapter III(3)(i)).2 A modernization programme is developing the Single Automated Information System (SAIS), including development of software systems and enhanced communication links, and improving inadequate infrastructure at border entry points

1 The Kyrgyz Republic plans to join the ATA Convention (Customs Convention on the ATA Carnet for

the Temporary Admission of Goods), the Johannesburg Convention (International Convention on Mutual Administrative Assistance in Customs Matters, and the Istanbul Convention (Convention on Temporary Admission).

2 Customs cooperation has been a key focus of the many regional and bilateral arrangements among CIS states (Chapter II).


(around 40). Electronic customs processing, however, remains poorly developed, and customs administration is weak, with corruption remaining a major problem.

10. There are no registration requirements for imports. The principal document for customs clearance is the Customs Cargo Declaration, which is used throughout the region as the Single Administrative Document. An importer may declare goods or use a customs broker licensed by the SCI (Regulation On Customs Brokers, December 2004).3 Supporting documents required include those verifying customs value and the means of transport (invoice, transportation, and shipping documents, such as bill of lading, international road waybill or air bill), origin (e.g. certificate in "CT-1" format for CIS countries or the internationally recognized "A" format for non-CIS imports), payment settlement (e.g. bank transfer, payment order), payment of customs duties (e.g. bank payment order, cash receipt), and, where relevant, import licences, safety certifications or SPS certificates (Instruction on Customs Clearance and Customs Control of Goods and means of Transport Conveyed Across the Customs Border, Resolution No. 961, December 2004). Importer's details, including business registration certificate and identification tax number, must also be provided.

11. Goods generally must be declared within 15 days of arrival, with all required supporting documentation provided within 45 days from the declaration date. If information submitted is inadequate, provisional clearance is possible using a temporary goods declaration (TGTD) or an incomplete goods declaration (IGTD). Importers regularly importing the same good may submit a periodic goods declaration (PGTD), which is a single customs declaration for all the goods conveyed across the customs border within a certain period of time (Resolution No. 961 of 26 December 2004).

12. Customs take test samples for certain goods to validate the import declaration and to ensure that imports meet domestic requirements. Imports are generally inspected physically.4 There are claims of duplicative inspections and that too many consignments are inspected, causing clearance delays.5 Green corridors for passengers operate mainly at Manas Airport in Bishkek and Torugart customs post. A risk-management system based on risk analysis is being developed to target high-risk imports, but is largely embryonic operationally.6 Importers that have engaged in trade for at least three years and have exemplary records may apply for special simplified customs procedures, subject to certain post-entry auditing using risk analysis (Instruction on Post-Entry Control, Resolution No. 961, December 2004). Currently 14 importers, covering an estimated 5% of total imports, benefit from these simplified procedures. It appears, however, that the business community in general is not adequately informed about simplified procedures or is reluctant to apply for eligibility, perhaps believing they are not worthwhile.

13. Customs must decide on clearance within one day of declaration, and goods are to be cleared in principle within three days. While data on average release times were unavailable, it reportedly frequently takes from three to five days.7 There are numerous complaints of excessive documentation and other cumbersome administrative requirements, including corruption by officials with substantial discretion in setting valuations.8 In this respect it should be noted that inefficient customs

3 Customs brokers must be Kyrgyz persons and have a staff specialist with a qualification certificate

from the SCI. There are currently 26 licensed customs brokers. 4 World Bank (2005a), para. 2.37. 5 World Bank (2005a), para. 3.99. 6 Customs has developed the Conception of Risk Analysis and Management Systems in Customs

Services of the EAEC since September 2004. 7 World Bank (2005a), para. 3.99. Some 75% of importers surveyed (down from 100% in 2002) stated

that clearance exceeded one day in 2005 (EBRD-World Bank Business, 2002). 8 World Bank (2005a), para. 3.99. The BEEPS also indicates that corruption and bribes to custom

officers are common.

Kyrgyz Republic WT/TPR/S/170 5

administration using outdated procedures can substantially raise traders' transactions costs, especially for less well-established or less well-connected firms.9 Transit of goods through the Kyrgyz Republic is often hindered by time-consuming convoy escort requirements.10

14. Goods undergoing clearance may be stored in licensed temporary storage or bonded warehouses.11 Temporary storage warehouses may be either open (allowing storage of any goods by any entity) or closed (for goods requiring special storage conditions or from certain entities). Temporary storage cannot exceed two months (ten days for perishables). Bonded warehouses may also be either open or closed, and allow storage for up to three years (60 days for goods with limited shelf life). Eligible exports re-imported within three years are exempt from duties, subject to repayment of internal taxes.

15. Smuggling, especially along the Kazakh and Uzbek borders, concerns mainly fuel and lubricants (petrol and diesel), alcoholic beverages (vodka, spirits, and beer), consumer goods, foodstuffs (flour, wheat, cotton seeds, fruit, and vegetables), construction materials, fertilizers, and agri-chemicals.12 A comprehensive action plan to tackle smuggling was adopted in 2004 (Government Resolution on Comprehensive Action Plan on Prevention of Illegal Importation and Trade of Goods, No. 726, September 2004). A national Headquarters on Prevention of Illegal Importation and Trade was established, consisting of representatives from all law enforcement and supervising agencies concerned (Association of Oil Traders, State Liquor Inspectorate, Kyrgyz Tobacco Company, and the Departments of Medicine Procurement and Precious Metals).

(ii) Tariffs

16. According to the authorities, Kyrgyz tariff policy is aimed at developing exports, protecting domestic producers, implementing WTO obligations, and implementing the EAEC common external tariff. The Government sets tariff rates, through legislation for each calendar year; they are approved by parliament. These rates cannot be changed during the year (Law on Customs Tariff for Imported Goods).13 The Ministry of Industry, Trade and Tourism drafts tariff rates for government approval based on consultations with other ministries and agencies, and on proposals from interested parties.

17. The Kyrgyz Republic's tariff obligations under the WTO Ministerial Declaration on Trade in Information Technology Products (ITA) were included in its accession commitments.14 The authorities indicate that it has fully met these obligations. The Kyrgyz Republic has submitted applied tariff schedules to the WTO Integrated data Base (IDB); the latest was for 2003.15

9 The Kyrgyz Republic was ranked 150th out of 155 in the category "trading across borders" in 2005,

reflecting an average of 18 documents, 27 approvals, and 127 compliance days required to import goods (Doingbusiness. Available at: http://www.doingbusiness.org).

10 World Bank (2005a), para. 3.99. According to Kyrgyz authorities, such escorts do not apply to goods secured by a pledge over other goods or property, bank guarantee, cash deposit, surety or insurance contract.

11 There are currently five licensed temporary storage warehouses and five licensed bonded warehouses.

12 World Bank (2005a), para. 3.99. The main smuggled goods, alcohol and gasoline, are each estimated to cost annually Som 4 billion in lost revenue. Total annual revenue forgone through smuggling has been estimated at Som 15 billion (ADB).

13 The previous year's rates apply until the legislation is passed, normally in March of each year; the latest legislation was adopted on 29 March 2006.

14 WTO document G/IT/1/Rev.36, 3 October 2005. 15 WTO document G/MA/IDB/2/Rev.22, 26 September 2005.


18. Tariff revenue has been a relatively minor source of government tax receipts for some time. Currently, it accounts for about 3%, down from 6% in 1995 when the tariff was a uniform 10%. This largely reflects the importance of domestic commodity taxes, especially VAT (accounting for 49%), excise tax (9%), and income, mainly company, tax (17%).

(a) Structure

19. The Kyrgyz Republic adopted the Harmonized Commodity Description and Coding System (HS96) in 1997.16 HS02 (9-digit) was adopted in 2003. Since May 2003, it has applied the 10-digit Goods Nomenclature of Foreign Trade (TN VED) adopted by EAEC members, which is the 10-digit classification used by the Russian Federation, and is seemingly HS compliant. This increased the number of lines from 10,614 to 11,099 (11,127 in 2006). The first six digits are the common HS coding, and the last four are national sub-divisions.

20. The Customs Tariff Law specifies most-favoured-nation (MFN) applied rates. Non-MFN rates, set at double the MFN duties or 10% in the case of zero, apply to countries with which "trade and political relations do not envisage MFN treatment" (Article 10). In practice, this covers only non-WTO members. Non-MFN rates also apply to imports of unknown origin. Preferential rates of zero are specified for goods originating from CIS states, in accordance with the CIF FTA, and from government-approved least developed countries that use the EAEC system of preferences (Article 8). Tariff legislation allows for ad valorem, specific or composite rates (Article 4), and seasonal duties (Article 5). "Specific types" of duties (contingency measures) may protect Kyrgyz economic interests following investigations in accordance with relevant legislation (Article 6).

21. The MFN tariff structure has been rationalized significantly since 1999.17 The number of ad valorem rate bands fell from twelve in 1999 to six (5%, 10%, 12%, 15%, 20%, and 30%) in 2006.18 The modal MFN tariff rate of 10% in 2006 covered 34% of tariff items (51% in 1999) (Chart III.1). Some 46% of tariff lines are duty free (12% in 1999), while 6% have rates of 12% or 15% (7% in 1999). The coverage of rates of 5% or below thus rose to 59% of tariff lines in 2006 (34% in 1999), mainly reflecting a higher share of duty-free items and a lower share with a 10% rate. The share exceeding 15% also fell from 5% in 1999 to negligible levels, with only certain refined sugar (20% and 30%) above this rate in 2006.

22. Non-ad valorem tariff rates apply to only 1.3% of tariff lines. These take the form of a few specific duties (11 tariff items) and mainly alternate duties (139 tariff items) on alcoholic beverages. As a 10% ad valorem duty is applicable only if below the specific alternate component, these duties can provide higher protection.19 Specific-type duties provide domestic producers more protection against lower priced products and from falling import prices. Expressing duties in U.S. dollars also helps insulate them from greater import competition if the som appreciates.

16 The Kyrgyz Republic has applied the HS without accepting the Harmonized System Convention. 17 A uniform tariff of 10% was applied until WTO accession, when several rate bands were added due

partly to protectionist pressures to raise rates on final goods (World Bank, 2005b). This probably increased disparities and thus may have made the tariff structure more distorting.

18 In 1999, the bands were 1%, 5%, 7%, 8%, 10%, 12% (one item), 15%, 17.5%, 20%, 25%, 30% and 50%.

19 The alternative specific duty per litre is: US$0.15 (on 52 items), US$0.25 (2 items), US$0.45 (35 items), and US$0.55 (50 items).


(6.1%)

(0.7%)

(6.7%)

(52.0%)

(22.4%)

(11.9)

(0.0%*) (0.0%*)

(5.7%)

(35.2%)

(12.8%)

(46.1%)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Duty free >0-5 >5-10 >10-15 >15-20 >20

Negligible.Figures in parentheses denote the share of total lines. These do not add to 100% as tariff rates were unavailable for 0.1% of tariff lines in both years. Calculations include the ad valorem component of alternate duties but exclude specific rates. The 1999 tariff is based on 9-digit HS96 nomenclature and the 2006 tariff on 10-digit HS02 nomenclature.

Number of tariff lines

Chart III.1Distribution of MFN tariff rates, 1999 and 2006

Tariff rates (%)

*Note:

MFN 1999

MFN 2006

Source : WTO Secretariat calculations, based on data provided by the Kyrgyz authorities.

23. No seasonal duties currently apply. A seasonal duty was introduced for white sugar in 2001 and removed in 2006. From 2003, rates were 15% ("out-of-season" duty) from September to end-February and either 30% or 20% for the rest of the year ("in-season" duty).20 In 2006, a uniform tariff of 30% or 20% was introduced throughout the year. While the tariff schedule also contains seasonal lines for a number of products (tomatoes, cucumbers, artichokes, oranges, mandarins, grapefruit, apples, and certain sugar), in all cases the same rates apply throughout the year. MFN seasonal duties are also used occasionally to protect domestic producers temporarily. A seasonal additional tariff of 20% was applied on wheat from September to end-November 2002, and on flour from August 2002 to end-April 2003; both had a zero tariff at that time. Seasonal duties cannot operate for more than six months within a year. No temporary seasonal tariffs currently apply.

(b) Bound MFN rates

24. The Kyrgyz Republic has bound 99.9 % of tariff lines since 1999, and final bound rates were implemented in 2005.21 The average bound rate in 2005 and 2006 was 7.7%, well above the average applied rate of 4.9% (Table III.1). The average (WTO definition) for agriculture, at 12.2%, exceeded the applied rate of 8.1%, and the average for industrial products of 6.5% was above the applied

20 In 2001 and 2002, the rates were 20% from April to 28 October and 10% for the rest of the year. 21 The few remaining unbound tariff items include aluminous cement (HS code 2523.3000.00), life

jackets (6307.2000.00), certain tungsten (wolfram) powders (8101.1000.00), spark-ignition reciprocating or rotary internal combustion piston engines used in pedestrian-controlled tractors and certain motor vehicles (8407.3410.00), parts of transmission shafts and cranks, bearing housings and plain shaft bearings used in civil aircraft (8483.9010.00), and motor vehicles for transport of highly radioactive materials (8704.2310.00).


average of 4.1%. In principle, this provides the Kyrgyz Republic with some latitude to raise tariffs within existing bindings across all HS sections, but particularly in "vegetable products", "mineral products", "plastic and rubber", "hides and skins", "arms and ammunition", and "works of art" (Chart III.2). Final bound rates were mainly 10% (45% of tariff lines), 0% (20%) and 5% (11%).22 In 2006, applied tariff rates exceeded bound levels on at least 33 items, some by as much as 10 percentage points.23 The Kyrgyz authorities indicate that these inconsistencies will be eliminated. Binding a number of items that have ad valorem applied rates with non-ad valorem duties reduces the transparency of tariff bindings.24

(c) Applied MFN rates

25. In 2006, the average (unweighted) applied tariff rate was 4.9%, down from 8.7% in 1999 (Tables III.1 and AIII.1). In 2006, 47% of rates were below 1999 levels (mainly falling from 15%, 10%, and 5% to zero) and 52% were unchanged (based on preliminary estimates by the WTO Secretariat). Rates therefore rose on only a handful of items between 1999 and 2006, with increases of 5 percentage points on a few products, such as white sugar, and of 10 percentage points, such as on husked rice. Thus, between 1999 and 2006 average tariffs fell across almost all HS sections: they rose from 8.7% to 9.8% for fats and oils and remained constant at 9.1% for footwear & headgear, and 10% for precious stones, etc. (Chart III.3). Average tariffs fell proportionately in wood and articles, pulp and paper, arms and ammunition, works of art, basic metals and products, hides and skins, and miscellaneous manufacturing. During the period, duties rose on several products, especially in 2003 when the average tariff rate rose to 5.4%. In 2006, rates increased on 0.5% of tariff items and fell on 3.4% of lines, compared with 2005.

Table III.1 Structure of MFN tariff in the Kyrgyz Republic, 1999 and 2002-06 (Per cent)

1999 2002 2003 2004 2005 2006

Bound tariffa

1. Bound tariff lines (% of all tariff lines) 99.9 99.9 99.9 99.9 99.9 99.9

2. Simple average bound rate .. .. .. .. 7.7 7.7

Agricultural products (HS01-24) .. .. .. .. 12.1 12.1

Industrial products (HS25-97) .. .. .. .. 6.4 6.4

WTO agricultural products .. .. .. .. 12.2 12.2

WTO non-agricultural products .. .. .. .. 6.5 6.5

Textiles and clothing .. .. .. .. 9.6 9.6

3. Tariff quotas (% of tariff lines) .. .. .. .. n.a. n.a.

Table III.1 (cont'd)

22 Other bound rates are 5.5%, 6.5%, 7%, 8%, 12%, 15%, 20%, and 30%. 23 Tariff lines 0409.0000.00 (natural honey) have respective applied and bound rates of 10% and 8%;

1509.1010.00, 1509.1090.00 and 1509.9000.00 have respective rates of 10% and 5%; 2007.9931.00, 2007.9933.00, 2007.9935.00, 2007.9939.00, 2007.9955.00, 2007.9958.00, 2007.9991.00 and 2007.9998.00 have respective rates of 15% and 10%; 6102.9010.00, 6102.9090.00, 6204.1910.00, 6204.1990.00, 6210.2000.00 and 6210.4000.00 have respective rates of 12% and 10%; 8502.3110.00, 8507.1081.01, 8507.1081.09, 8507.1089.00 have respective rates of 10% and 5%; and 7315.1190.00, 8425.1910.00, 8425.1991.00, 8425.1999.00, 8433.1990.00, 8462.2905.00, 8472.09030.00, 8518.1020.00, 8518.3020.00, 8527.9092.00 and 8543.8915.00 have respective rates of 10% and 0%. It is unclear for some other tariff items where the bound duty is non-ad valorem and the applied rate ad valorem, such as for 2204.3000.00 (other grape must), which has a bound specific rate of US$0.8 per litre and an applied rate of 5%.

24 The share of tariff items with non-ad valorem bindings of 1.8% exceeds the share subject to applied non-ad valorem duties of 1.3%.


1999 2002 2003 2004 2005 2006

4. Duty-free tariff lines (% of tariff lines) .. .. .. .. 20.2 20.2

5. Non-ad valorem tariffs (% of tariff lines) .. .. .. .. 1.8 1.8

6. Non-ad valorem tariffs with no AVEs (% of tariff lines) .. .. .. .. 1.8 1.8

7. Nuisance bound rates (% of tariff lines)b .. .. .. .. n.a. n.a.

Applied tariff

8. Simple average applied rate 8.7 5.2 5.4 5.2 5.2 4.9

Agricultural products (HS01-24) 10.0 8.4 8.9 8.9 8.9 8.9

Industrial products (HS25-97) 8.3 4.2 4.4 4.2 4.2 3.8

WTO agricultural products 9.7 7.7 8.1 8.1 8.1 8.1

WTO non-agricultural products 8.4 4.5 4.7 4.5 4.5 4.1

Textiles and clothing 12.5 9.7 8.9 8.4 8.1 8.1

9. Domestic tariff "peaks" (% of all tariff lines)c 0.6 4.9 - - - 2.7

10. International tariff "peaks" (% of all tariff lines)d 6.9 4.9 - - - -

11. Overall standard deviation of tariff rates 5.2 5.7 5.1 4.9 4.9 5.0

12. Coefficient of variation of tariff rates 0.6 1.1 0.9 0.9 0.9 1.0

13. Tariff quotas (% of all tariff lines) n.a. n.a. n.a. n.a. n.a. n.a.

14. Duty-free tariff lines (% of all tariff lines) 11.9 51.5 42.1 42.7 43.0 46.1

15. Non-ad valorem tariffs (% of all tariff lines) 1.5 1.5 1.4 1.4 1.4 1.3

16. Non-ad valorem tariffs with no AVEs (% of all tariff lines) 1.5 1.5 1.4 1.4 1.4 1.3

17. Nuisance applied rates (% of all tariff lines)b - n.a. n.a. n.a. n.a. n.a.

- Negligible. n.a. Not applicable. .. Not available.

a Final bound rates were implemented in 2005. b Nuisance tariffs are rates of 2% or below. c Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate (indicator 8). d International tariff peaks are defined as those exceeding 15%.

Note: Tariff schedules for 1999 and 2002 are based on HS96 nomenclature; schedules for 2003 to 2006 are based on HS02 nomenclature.

1999, 2002 and 2003 are based on 9-digit HS codes; 2004, 2005 and 2006 are based on ten-digit HS codes. Calculations include the ad valorem component of alternate rates but exclude specific duties.

Source: WTO Secretariat calculations, based on data provided by the Kyrgyz authorities.

26. Tariffs are generally higher on agricultural products than on industrial products, averaging 8.1% and 4.1%, respectively, under the WTO definition in 2006.25

(d) Escalation, ranges, and peaks

27. Although tariffs range from zero to 30% in 2006, tariff dispersion and escalation is relatively low overall, with a standard deviation of 5 percentage points (Chart III.4 and Table AIII.2). However, evidence suggests that tariff disparities may have risen slightly in 2006, with both the standard deviation and the coefficient of variation rising marginally from 2005 levels. At the 2-digit ISIC industry level, tariff escalation is most pronounced in "textiles and leather" and "food, beverages and tobacco". With almost all rates at 15% or below, domestic tariff peaks apply to only 2.7% of tariff lines, and international peaks are negligible.

25 Under the HS definition, the averages are 8.9% and 3.8%, respectively.


0

2

4

6

8

10

12

14

16

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Chart III.2Applied MFN and final bound tariff averages by HS section, 2006Per cent


Bound

Applied MFN

01 Live animals and prod. 02 Vegetable products03 Fats and oils 04 Prepared food, etc.05 Mineral products06 Chemicals and prod.

07 Plastic and rubber08 Hides and skins09 Wood and articles10 Pulp, paper, etc.11 Textiles and articles12 Footwear, headgear

13 Articles of stones14 Precious stones, etc.15 Base metals and prod.16 Machinery17 Transport equipment18 Precision instruments

19 Arms and ammunition20 Miscellaneous manuf.21 Works of art, etc.

Note: Calculations include the ad valorem component of alternate rates but exclude specific rates. A few tariff lines covering HS Sections 05, 11, 15, 16, and 17 are not bound.

Overall applied MFN average 2006

(4.9%)

Overall final bound average 2006

(7.7%)

(e) Concessions

28. The Customs Code, Tax Code, and annual Customs Tariff Law regulate tariff exemptions. The authorities state that there are no special provisions granting tariff concessions for imports of non-produced goods, by government or state-trading entities, or for particular end-uses.

29. Exemptions under special customs arrangements cover imports to prevent or help in emergency situations, such as natural disasters; as part of humanitarian aid; and of scientific equipment used for geophysical expeditions. They also apply to specified temporary imports (Government Resolution On Approving the List of Temporarily Imported (Exported) Goods with Full Conditional Exemptions from Customs and Duties, No. 963, December 2004). Partial exemptions apply on some other temporary imports, with 3% of the duty amount to be paid for each month or part thereof of importation.

30. The average tariff collection rate of 2.8% in 2002 was substantially below the unweighted and import-weighted average tariff rates, suggesting that duties on a significant share of MFN imports


were not collected; this was largely due to exemptions.26 The Government's concern over the extent of concessional imports and possible non-collection of duties led to a review of the customs duty and exemption system since 2002. The new Customs Code has substantially restricted the use of tariff concessions, according to authorities, and is likely to have contributed to the increase in tariff revenue being collected.

(f) Preferences

31. Imports from CIS-member countries and designated least developed countries are tariff-free (Chapter II).

(g) Tariff quotas

32. The Kyrgyz Republic has no tariff quotas.

0

5

10

15

20

25

30

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Chart III.3Applied MFN tariff averages by HS section, 1999 and 2006Per cent


1999

2006

01 Live animals and prod. 02 Vegetable products03 Fats and oils 04 Prepared food, etc.05 Mineral products06 Chemicals and prod.

07 Plastic and rubber08 Hides and skins09 Wood and articles10 Pulp, paper, etc.11 Textiles and articles12 Footwear, headgear

13 Articles of stones14 Precious stones, etc.15 Base metals and prod.16 Machinery17 Transport equipment18 Precision instruments

19 Arms and ammunition20 Miscellaneous manuf.21 Works of art, etc.

Note: Calculations include the ad valorem component of alternate rates but exclude specific rates.


(4.9%)


(8.7%)

26 World Bank (2005a), p. 43.


n.a.

n.a.

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Food,beverages

and tobacco

Textiles andleather

Wood andfurniture

Paper,printing andpublishing

Chemicals Non-metallicmineral

products

Basic metal Fabricatedmetal

products andmachinery

Other

Chart III.4Tariff escalation by 2-digit ISIC industry, 1999 and 2006

n.a.

n.a.

0.0

2.5

5.0

7.5

10.0

12.5

15.0

Food,beverages

and tobacco

Textiles andleather

Wood andfurniture

Paper,printing andpublishing

Chemicals Non-metallicmineral

products

Basic metal Fabricatedmetal

products andmachinery

Other

Average applied rate in manufacturing

(8.8%)

Not applicable.

Calculations include the ad valorem component of alternate duties but exclude specific rates.

WTO Secretariat calculations, based on data provided by the Kyrgyz authorities.

n.a.

Note:

Source :

Per cent

First stage of processing Fully processedSemi-processed

Per cent

Average applied rate in manufacturing

(4.9%)

2006

1999


(iii) Other import charges

33. In addition to tariffs, imports attract VAT and excise taxes (Government Resolution on Instruction on Control Over Calculating and Making Customs Payments, No. 961, December 2004). These taxes apply equally to domestic and imported goods. A customs fee of 0.15% of the c.i.f. value of the import (excluding VAT and excise where applicable) is also levied to cover the costs of providing customs formalities (the fee is doubled for outside normal working hours or designated areas). Although fees are, in principle, not to exceed the actual costs of providing the customs services, recovering costs by way of a percentage ad valorem fee is likely to collect above costs on higher valued shipments.27 A customs fee equal to one minimum monthly wage per hour (Som 100) per transport vehicle is also charged when providing customs escort. It is claimed that due to customs inefficiencies, traders also make high unofficial payments to speed-up customs clearances.28

34. All foreign road hauliers transporting goods to or from the Kyrgyz Republic must obtain a special permit from the Ministry of Transport and Communications in accordance with intergovernmental agreements on international road communication. This applies to hauliers of all countries, unless otherwise stipulated by intergovernmental agreements.29 Foreign hauliers who do not have special permits are charged a US$250 fee, unless otherwise stipulated by an intergovernmental agreement, and except for those that use TIR carnets.30 Road transport providers must declare if they have over 400 litres of fuel, to prevent smuggling. However, this places the additional burden on them of convincing Customs of the amount of fuel in their tanks.

(a) Value-added tax

35. The current VAT rate of 20% (10% for agricultural produce) applies to most goods and services, except mainly for financial, insurance, transport, postal, and public utility services, gold, approved pharmaceuticals, baby food, and goods classified as technological equipment to be used as part of an entity's "chartered capital" (estimated to have cost Som 192 million or US$4.6 million in revenue forgone in 2005).31 As from 2006, imports of fixed assets by taxable entities used in their economic activities are VAT exempt. Imports, including from CIS states, are levied VAT as for domestic goods. The tax base for imports is the duty-paid c.i.f. price plus excise taxes where applicable.

36. Tax credits are provided for VAT paid on inputs, including in manufacturing exports.32 However, although the legislation stipulates refund of tax credits for exporters and other regular producers of zero-rated products within 30 days from making the claim, this is alleged not to occur in practice.33 The VAT exemption on imported capital inputs was eliminated in 2002.

27 The SCI has formed a Working Group to examine this issue. 28 World Bank (2005a), para.2.37. 29 The Kyrgyz Republic has signed 15 agreements regulating international road communication. 30 The fee is not collected at the border but during customs clearance of the goods. The Kyrgyz

authorities indicate that this fee is based on the same fee applied by Kazakhstan. Iranian hauliers are charged US$1,000.

31 These cover a wide range of goods, including tyres, machinery, sound equipment, and motor vehicles. The VAT was extended to processed agricultural products in 2003.

32 Unless the final goods or services are exempt from VAT. Exports are zero-rated (except for gold, which is VAT-exempt) and hence eligible for tax credits for VAT paid on inputs.

33 World Bank (2005a), para. 2.53.


(b) Excise tax

37. Excise taxes are levied on goods considered damaging to people's health (alcoholic beverages) or the environment (certain fur skins and articles thereof, excluding sheep and cattle), petroleum products, and a few luxury items (annual Law on Rates of Excise Tax for Excisable Goods Imported and Produced by Legal Entities). Tax rates are specific, except for certain ad valorem rates that apply on the manufacturer's selling price or (if imported) the customs value (duty-paid c.i.f. price) for jewellery (25%), fur skins and articles thereof (5%), leather products (5%), crystal ware (20%), firearms (20%), carpets, except half-woollen ones (10%), and coffee and cocoa (5%).34 Excise tax is levied on imports, including from CIS states, as for domestic goods. Exports are exempt from excise taxes.

38. While excise tax is not levied on exports, the Kyrgyz Republic and other CIS countries taxed exports to each other. However, upon WTO accession, the Kyrgyz Republic committed to apply the destination principle to CIS exports on a reciprocal basis from 1999. All excisable exported goods are excise-exempt regardless of the destination country.

39. Domestic and imported goods are taxed equally. However, the incidence of excise on tobacco products may be heavier on imports and foreign-brand cigarettes made domestically, as rates rise with retail prices; this may penalize the more expensive products.35

(iv) Customs valuation, minimum import prices, and preshipment inspection

40. The Kyrgyz Republic uses the c.i.f. import price for customs valuation, including, in principle, for second-hand goods (Customs Code and Government Resolution, Instruction on Methods for Determining Customs Value of Goods Imported, No. 961, December 2004). According to the authorities, the Code complies fully with the WTO Customs Valuation Agreement. The primary customs valuation method is the transaction value, i.e. the price actually paid or payable for the import when sold for export. If the importer's declared value is considered suspect and cannot be justified, Customs may apply sequentially the transaction value of identical or similar goods, the "deductive value" method, the "computed value" method, or the "reserve" method.36 Customs maintains a prices database to assist import valuation. Appeals on valuation or other customs decisions can be made to a superior body or to the courts within 20 days, and are to be concluded within 20 days (Code on Administrative Liability). Since 1998, there have been 200 appeals (47 successful) against customs decisions.

41. The Kyrgyz Republic implemented the Decisions of the WTO Committee on Customs Valuation on Valuation of Carrier Media Bearing Software for Data Processing Equipment and on Treatment of Interest Charges in the Customs Value of Imported Goods from 3 September 1998.37

42. As the use of minimum customs values is prohibited, the Kyrgyz Republic does not apply minimum import or reference prices. 38 Preshipment inspection is not used.39

34 Excise rates are: Som 2, 6, 15, 21, 22, and 27 per litre on alcoholic beverages; and Som 200, 600,

800 and 1,400 per tonne on petroleum products. 35 Excise rates rise from Som 10 per 1,000 sticks for non-filter cigarettes to Som 25 for cigarettes

retailing up to Som 10 per packet; Som 70 for those priced from Som 10 to 16; Som 170 for those retailing from Som 16 to 24; and Som 270 for those priced above Som 24 per packet.

36 The importer may opt to apply the "computed value" method before the "deductive value" method. 37 WTO document G/VAL/N/3/KGZ/1, 5 April 2000.


(v) Rules of origin

43. The Kyrgyz Republic does not maintain non-preferential rules of origin.

44. Preferential rules of origin apply in the Kyrgyz Republic's various trade agreements (Chapter II). They involve mainly preferential imports from CIS-member states, and were revised in 2000 (Rules for Determining Country of Origin of Goods Approved by Decision of Council of Heads of CIS Governments, 2000) under the CIS-FTA and notified to the WTO.40 Goods wholly obtained, including minerals, vegetables, and animals and their products are considered originating products. Substantial processing or transformation is determined by change in tariff heading at the 4-digit HS level. However, for a wide range of specified goods, special processing or manufacturing conditions, including technological requirements, must meet origin rules, including, in some cases, limiting the share of imported eligible materials used in production (the limit is usually 50% but may be as low as 20% of the product's ex-works price). Cumulative provisions apply. The "direct purchase and supply" rules require that imports arrive directly from CIS states and are not transported outside the region unless under special circumstances.

45. CIS-FTA rules also apply under Kyrgyz bilateral FTAs with selected CIS states, and among EAEC participants. They also apply under preferential tariff arrangements extended to imports from least developed countries.41

46. In general, the change in 4-digit tariff classification criterion will apply to preferential imports if origin rules are non-specific.

(vi) Import prohibitions and sanctions

47. Imports of narcotics and pornography as well as certain goods under international conventions are prohibited to protect human health or the environment. In November 2004, imports of outdated and used articles of equipment containing ozone-depleting substances were banned (in accordance with the Montreal Protocol on Substances that Deplete the Ozone Layer). Imports of specified pesticides and chemicals are also prohibited, since July 2001 (Rotterdam Convention). Another six chemicals are banned, and six more that are currently licensed are to be prohibited (Stockholm Convention on Persistent Organic Pollutants).42

48. The Kyrgyz Republic does not have any import embargoes or sanctions.

(vii) Import quotas and licensing

49. Spirits and alcoholic beverages (including wine and beer) from non-WTO members are subject to import quotas (Regulation on Procedure for Quoting of Alcohol Products and Beer, No. 227, April 2004). The authorities indicate that these volume quotas are set annually at the

38 However, for second-hand motor vehicles a valuation guide is used by customs to check declared

values, and these book values are reportedly substituted for the transaction value if higher. 39 WTO document G/PSI/N/1/Add.9, 21 March 2001. 40 WTO document G/RO/N/39, 22 April 2003. 41 If the Kyrgyz Republic joins PRETAS among OIC members it will need to adopt its preferential

rules of origin, which base substantial transformation on either value-added criterion (minimum 40% domestic value added or 30% for least developed members) or on sectoral arrangements.

42 The banned chemicals are: aldrin, chlordane, dichlorodiphwnyl trichloroethane, dieldrin, heptachlor, and hexachlorobenzene. Chemicals to be prohibited include endrin, mirex, toxaphene, polychlorinated biphenyls, and dibenzofuran.


average of imports during the previous three years to meet import demand, and are therefore non-restrictive; they are also revised quarterly to reflect demand and local production trends. The State Inspection for Control Over Production, Storage, and Sales of Spirit and Alcohol Products (SIAP) has determined quotas (except for imports of cognac spirit and wine materials designated for production of cognac and champagne) since 2001 when this authority was transferred from the state enterprise, Kyrgyzalko (Government Resolution No. 260, 31 May 2001). These quotas are set based on importers' applications, product demand, and domestic production levels. Import quotas are allocated by the Competition Commission (formed by the SIAP). In allocating quotas, preference is given to beverages not produced domestically or of inferior quality or lower price, those made from natural raw materials, and to importers having direct contracts with foreign producers or investing in the Kyrgyz economy and imposing no debt on the national budget.

50. Quotas on light medium distillates, other types of raw materials and components for production of oil products were replaced in November 2002 by licensing arrangements that permit imports by certain approved firms (Government Regulation No. 783, 18 November 2002). The eligible importers and respective quotas are: Kyrgyz Petroleum Company (250,000 tonnes); Vostok (160,180 tonnes); Kara-Archa Ltd. (66,000 tonnes); Kyrgyz-Russian JV Ltd. (60,000 tonnes); TNK Nurneftegaz Ltd. (50,000 tonnes); Tyan-Shan Oil Concern Ltd. (12,000 tonnes); Bazaltpromservis Ltd. (10,000 tonnes); and R-Dolon JSC (60,480 tonnes).43 These enterprises import under general conditions without additional preferences.

51. Imports of certain goods require a licence to protect human health and safety, consumer and ecological welfare, national security, national treasures and exhaustible natural resources (Jogorku Kenesh Resolution, No. 1101-1, June 1998). Licensed goods are contained in the List of Specific Goods Imported under Licence Contained in the Regulation on Import Licensing (Table III.2). Licensing applies to all countries and according to authorities is not intended to restrict import levels. There is no penalty for under-utilizing a licence, and applications must be supported by an import contract. Licences must be processed within 30 days, but usually take at most one week, less if urgent. The Ministry of Industry, Trade and Tourism issues licences subject to the importer obtaining approval from the licensing authority if this is a different ministry. No deposit or advance payment requirements apply, and licences are condition-free but generally non-transferable. Refusal to grant a licence can be appealed to the courts.44 Foreigners are eligible for licences in the same way as Kyrgyz firms or citizens. As of 2005, about 9% of total imports are licensed.

52. There are two types of import (export) licences. "Single" licences are issued on a transaction basis while "general" licences apply for a period of up to one year. According to the authorities, import licences on precious metals and stones, tobacco, and alcoholic beverages are granted "automatically" unless the application is incomplete, unreliable or fails to meet the stipulated criteria. This is not the case for other licensed goods, covering mainly arms, military equipment, explosive substances, nuclear materials and technologies, poisons, narcotics, pharmaceuticals and hazardous waste (in conformity with the Basel Convention, adopted by the Kyrgyz Republic in 1996).

43 Government Resolution, List of Economic Entities Permitted to Import Light and Medium

Distillates, Other Types of Raw Materials and Components for Production of Oil Products, 1 January 2006 44 Other licensing bodies include the Ministries of Defence, Economy and Finance, and Health, and the State Commission for Drug Control.


Table III.2 Goods subject to import licensing, 2005

Goods HS codes Licensing body Rationale/justification

Ciphering devices (including ciphering equipment, spare parts, ciphering programs), normative and technical documents for the ciphering devices (including designing and exploiting)

8471 (ciphering equipment only), 8473.3000.0 (for the ciphering equipment only), 8543.8090.0 (ciphering equipment only), 8543.9090.0 (ciphering equipment only)

Ministry of Industry, Trade and Tourism

National security

Arms and weapons, specific parts for their production, works and services in the area of military- technological cooperation

List of the Ministry of Defence Ministry of Industry, Trade and Tourism

National security

Means of protection from warfare agents, components and accessories


National security

Military uniform, clothing and attributes


National security

Normative and technical documents for military products (construction and exploitation)


National security

Gunpowder and explosives, explosive devices, and pyrotechnics

3601 (except for hunting powder), 3602, 3603, 3604

Ministry of Internal Affairs National security

Nuclear materials, technologies, equipment, and plant, special non-nuclear materials, sources of radiation, including radioactive waste

List approved by the President (Government Resolution No. 55, 2 June 1996)

Ministry of Defence National security, and international commitments related to non-proliferation of mass destruction and production technologies thereof

Materials, equipment, and technologies intended for peaceful purposes but that can be used in creating weapons of mass extermination



National security, and international commitments related to non-proliferation of mass destruction and production technologies thereof

Certain types of raw materials, equipment, technologies and scientific information that can be applied in creating weapons and military techniques



National security, and international commitments related to non-proliferation of mass destruction and production technologies thereof

Precious metals, alloys, goods made from them, metals plated with precious metals and goods made from them; ores; concentrates; scrap and waste

2616 (ores and concentrates), 2843 (metals, junctions, amalgams), 3006.4000.0 (from precious metals only), 7106-7112, 7113.1100.0, 7113.1900.0, 7114.1100.0, 7114.1900.0, 7115.1010.0, 7115.9010.0, 7115.9090.0, 7118 (from precious metals only), 8544 (only with conductors from precious metals), 9608.1030.0, 9608.3910.0


To protect national treasures of artistic, historic or archaeological value; to conserve exhaustible natural resources

Precious natural stones and goods made from them, powder and recuperate of precious natural stones and goods made from them

7101, 7102, 7103 (precious stones only), 7105 (from precious stones only), 7116 (from precious stones only).


To protect national treasures of artistic, historic or archaeological value; to conserve exhaustible natural resources.

Narcotics and psychotropic drugs, highly toxic and intoxicative agents, precursors

List of the State Commission for Drug Control

State Commission for Drug Control

Population's health and welfare



Goods HS codes Licensing body Rationale/justification

Highly toxic poisons List approved by the Government (Government Resolution No. 55, 6 February 1996)

.. Population's health and welfare, and flora and fauna in general

Hazardous wastes List of the Basil Convention on the Control over Trans-border Transportation of Hazardous Cargo of 22 March 1989 (Parliament Resolution No. 304-1, 18 January 1996)


Chemical means of protection of plants

3808 (preparations for the plant protection only)


Pharmaceuticals List of the Ministry of Health Care Ministry of Health Care Population's life

Service and civil guns List of the Ministry of Internal Affairs


Public order

Tobacco List of Kyrgyztamekisi 2401, 2402, 2403

State joint stock company Kyrgyztamekisi

Population's health

Spirits and alcoholic products List of Kyrgyzalco 2204, 2205, 2206, 2207, 2208, 2208.40, 2208.50, 2208.60, 2208.70, 2208.90

State joint stock company Kyrgyzalco

Public order and the population's health

.. Not available.

Source: Kyrgyz authorities.

53. Kyrgyztamekisi remains responsible, in principle, for licensing imports (and exports) of tobacco leaf and products, due to an inconsistency in legislation.45 However, according to the Kyrgyz authorities, in practice , there is no licence required to import tobacco.

54. The new draft law on licensing (Article 26) introduces the notion of automatic and non-automatic import licensing. The authorities also indicate that it contains the major WTO provisions on licensing, such as predictability and clear licensing procedures, protection of importers' and foreign suppliers' interests, and mandatory publication of information related to import licenses. Automatic licences are to be issued by the authorities without discretion, and within three days from application. Non-automatic licences will operate on imports (exports) where quotas exist, to protect human health and safety as well as national security, or to grant exclusive (monopoly) trading rights over certain goods. Decisions on such licences are to be made within 30 days from application when they are to be issued on a "first come first served" basis, or 60 days if applications are to be processed simultaneously.

(viii) Contingency measures

55. The Customs Tariff Law permits anti-dumping, countervailing and safeguard duties in accordance with respective legislation (separate Laws on Anti-dumping, Countervailing and Safeguards, October 1996). Each law ensures WTO compliance by specifying that the rules of an international treaty ratified by the Kyrgyz Republic will apply if inconsistent. Kyrgyz has applied no anti-dumping, safeguard or countervailing measures, including on CIS imports.

56. Injury is non-defined in the anti-dumping legislation; it is defined for countervailing as (financial) losses caused or threatened by subsidized imports. It is to be determined by investigations based on evidence including import levels, quality and impact on domestic prices and production to

45 While such licences were cancelled in January 2001, Kyrgyztamekisi and tobacco products were not removed from the list of imported goods subject to licensing.


demonstrate a causal relationship.46 The MITT is responsible for conducting anti-dumping and countervailing investigations. Along with the Finance Ministry, it is jointly responsible for implementing anti-dumping measures consistent with international obligations. Provisional countervailing and anti-dumping duties, including cash deposits, may be imposed for up to nine months. Anti-dumping duties cannot exceed the dumping margin. Voluntary price undertakings are allowed in anti-dumping and countervailing cases. Government decisions to apply anti-dumping duties, but not countervailing measures, must be approved by Parliament. These decisions can be appealed to the courts. The maximum duration of anti-dumping and countervailing measures is five years but they can be extended if another investigation finds that the injury persists.

57. Safeguards can be taken against imports causing or threatening "serious" injury to domestic producers as determined by investigations.47 Safeguards are to be applied on an MFN basis, including to CIS imports, and can include special customs duties and import quotas; arbitrary restrictions of supplies, agreements on market regulation, regulation of sales, introduction of price monitoring or other similar measures are specifically prohibited. Temporary safeguards are allowed. The MITT is responsible for conducting the investigation and applying safeguards. Government decisions on safeguards do not require parliamentary approval. The duration of safeguards (including provisional measures) is not to exceed four years, but can be extended to ten years if subsequent investigations establish that injury persists. As this exceeds the maximum of eight years permitted in the WTO rules, in practice, the ten-year period would only apply to imports from non-WTO members.

58. At the start of anti-dumping, countervailing, and safeguard investigations, the National Agency for Anti-monopoly Policy and Competition Improvement issues preliminary conclusions on whether there is sufficient evidence to hold an investigation. Based on this assessment, the MITT decides whether an investigation is warranted.

(ix) Government procurement

59. Government procurement accounts for about 30% of the national budget: It totalled Som 4.1 billion in 2005 (Som 1.9 billion in 2001), and since 2004 has been opened substantially and is now used less as an instrument of industrial policy. The Kyrgyz Republic is negotiating joining the WTO Agreement on Government Procurement in line with its accession undertaking to become a member by end-1999, and is an observer in the GPA Committee. Government procurement legislation was amended in May 2004 (Law on Government Procurement).

60. The Kyrgyz government procurement system is centralized, with individual bodies responsible for their own procurement. The State Agency on Government Procurement and Material Reserves, the central body handling government procurement, controls application of the legislation, supervises purchasing entity's decisions, monitors legal infringements, implements procurement policies, ensures transparency and openness of procurement proceedings, and settles disputes. The legislation requires internal and foreign suppliers or contractors to participate equally in procurement, except for preferential price margins. Foreign bidders can no longer be prevented from participating where domestic suppliers are considered sufficient; thus, procuring entities cannot discriminate against or exclude foreign suppliers if included in the tender.48 Qualification requirements must be objective and fair and not discriminate against suppliers. State-owned entities, at their own discretion and subject to agreement by the State Agency, may specify that domestic suppliers use local labour

46 Government Resolution on Conduct of Anti-dumping Investigation and Investigation to Determine Subsidies Subject to Compensation No. 14, January 2001.

47 Government Resolution on Conduct of Investigation Prior to Introduction of Safeguards Measures No. 15, January 2001

48 WTO document GPA/W/197, 10 June 2002.


and materials in procurement. However, such requirements cannot be applied to foreign contractors who are free to make their own decisions on whether to use local inputs.

61. The legislation covers procurement by all ministries, administrative agencies, local government bodies, state organizations, state-owned corporations (51% or more state owned). For procuring entities with charter capital up to Som 100,000, the legislation applies to contracts above Som 100,000 for goods and services, and Som 150,000 for works; for procuring entities with charter capital above Som 100,000, the legislation applies to contracts exceeding Som 500,000 for goods, services, and works. Contracts below these thresholds are not covered by the legislation. Procurement for national defence and security is excluded. Approval from the State Agency on Government Procurement and Material Reserves is required for procurement over Som 700,000 and for single-source procurement over Som 100,000. Under the legislation, international rules accepted by the Kyrgyz Republic are applicable if domestic legislation is inconsistent (Article 68). Contracts are to be awarded based on price, unless the documentation specifies other objective criteria. Procurement decisions may be appealed to the courts, but generally only after administrative remedies are exhausted.

62. Domestic suppliers receive a 20% price margin of preference on goods and services (excluding consulting), and of 10% on works (construction, drilling, seismic activities and related services). To be eligible, construction contractors must use local labour and source at least 30% of materials domestically.

63. Methods of public procurement are tendering with unlimited participation (the main tendering method) and limited participation; two-stage tendering with tenderers submitting technical bids first and, if accepted, final tenders with prices; requests for quotes (from at least three suppliers, previously two); and single source procurement. Legislation does not allow for electronic procurement, although there are plans for its introduction. Each State Agency officer maintains a public list of qualified suppliers for respective industries, and creates a database of unreliable suppliers; this information is available to all procurement entities. Suppliers that meet technical requirements and have a reliable commercial and supply record can be included on the list of qualified suppliers on the initiative of the State Agency, the procurement entities, or the suppliers themselves.

(x) State trading

64. The Kyrgyz Republic has not notified any state-trading enterprises. During WTO accession it indicated that state-trading monopolies in the alcohol (Kyrgyzalko, de jure), tobacco (Kyrgyztamekisi, de jure), and the electrical and thermal energy industries (Kyrgyz Energy Holding, Kyrgyzenergo, de facto) would be notified. It was not prepared to commit to abolish state trading in alcohol or tobacco. It also indicated that Kyrgyzpharmacia would not be notified as it had no role in issuing import licences, and that the sole producer, importer, and exporter of antimony, Kyrgyzaltyn, was not considered a state-trading enterprise because it had no exclusive or special privileges in foreign trade (imports were unlicensed and any person could be licensed to export it).49 Kyrgyzaltyn is also the main state body handling other ores, and has exclusive rights to purchase or sell gold, and other precious and rare-earth metals, such as tellurium and scandium (Law on Ores No. 23, February 2002).

65. Kyrgyzalko is no longer responsible for setting import quotas (section (vii)). The majority of Kyrgyzalko's shares were transferred to the Alkoprom State Enterprise in 2002 and it is the major shareholder of Kyrgyzalko. Alkoprom's main activity is to manage the state-owned shares (51%) of 20 licensed manufacturers of alcoholic beverages. It does not engage in any other activities, nor

49 WTO document WT/ACC/KGZ/26, 31 July 1998.


possess any exclusive rights or powers, according to authorities. Other entities, including foreign, may be licensed to produce alcoholic beverages provided they register with the Ministry for Justice and form a joint venture that is majority owned by Alkoprom. The State Inspectorate for Control over Manufacturing, Storage, and Sale of Spirit and Alcohol Products issues manufacturers of alcoholic beverages with quota permits to purchase spirit from Kristall State Enterprise, which produces ethyl spirit, and has the exclusive right to import ethyl spirit, if necessary.

66. Kyrgyzenergo ceased operating in 2001 when its operations were unbundled (Chapter IV(4)(i)).

67. The state-owned entity, Kyrgyztamekisi, issues licences to engage in processing tobacco leaves and manufacturing tobacco products; maintains stocks and processes tobacco; sells fermented tobacco; and administers pricing policies for tobacco leaf. There is currently a statutory monopoly on cigarette production (section (4)(iv)).

68. The state-owned joint-stock company, KyrgyznefteGaz, responsible for developing domestic oil and gas fields, does not have an import monopoly on natural and liquefied gas. The state-owned (82.09%) joint-stock company Kyrgyzgaz has the exclusive right to transact and import natural and liquefied gas from Uzbek's Uztransgas Company.50 It also handles domestic transportation, storage, and distribution of gas, and is considered a natural monopoly for anti-monopoly purposes.

69. The state-owned Kyrgyz Temir company was formed in 2001 to control the purchase, collection, and processing, of iron, steel, and non-ferrous scrap, and has the exclusive right to import (export) these products.

(xi) Standards and other technical requirements (including SPS)

(a) Standards, testing, and certification

70. Transforming the Kyrgyz-inherited Soviet standards system to a market-based regime is a major ongoing challenge. It featured heavy government involvement, including in standardization, accreditation, and conformity assessment, mandatory inspections and certifications (covering some 70% of all products), unique national standards, and overlapping responsibilities among regulatory bodies. This added heavily to Kyrgyz producers' (including exporters') costs, increased inefficiency, and restricted trade.51 Progress has been slow. Testing agencies that rely on fees (e.g. the Ministry of Architecture and Construction, and the Sanitary and Epidemiological Service (SES)), have also resisted relaxation of mandatory requirements.52 However, duplication of certification, inspection, and state supervising functions is, in principle, prohibited; hence, according to the authorities, such conflicts of interest should be reduced as this is increasingly implemented over the next five years.53

71. The Government has accelerated efforts to achieve a market-based standards regime by streamlining the certification and inspection requirements, and improving standards and technical regulations. According to the authorities, legislation consistent with WTO disciplines on technical barriers to trade and SPS measures was introduced in 2004 (Law on the Fundamentals of Technical

50 Kyrgyzgaz was created in 1998 from the state-owned Kyrgyzgazmunaizat, which had financial

difficulties, and the latter currently supplies consumers with oil products in competition with private companies. 51 World Bank (2005a), pp. 44, 49. Excessive red tape associated with the existing standards and

certification system was estimated to reduce net profits of small and large Kyrgyz dairy enterprises by 140% and 40%, respectively.

52 World Bank (2005a), p. 51. 53 It is prohibited to have two or more acts stipulating the same mandatory requirements for any good.


Regulations, December). It is intended to reduce business costs by making the system far less cumbersome and more transparent. In particular, the legislation limited mandatory requirements to technical regulations needed for human and animal safety, environmental and consumer protection, and made standards voluntary.54 There is a five-year transitional period (until 2009) for review of all technical regulations; in the meantime only the requirements contained in existing standards that relate to these objectives are mandatory. The list of mandatory requirements (technical regulations) now covers some 70% fewer goods (Government Resolution No. 639 on List of Products Subject to Mandatory Conformity Assessment, December 2005)55; services were eliminated from mandatory certification in 2000 (excluding "storage, transportation and utilization of goods") and are covered by voluntary arrangements.

72. The current system attempts to harmonize national standards with international norms, such as ISO, IEC and the Codex Alimentarius Committee.56 Of the 20,000 Kyrgyz national standards (at end 2005), many of which are non-operational as they are outdated or cover goods not produced domestically, about 19,000 are regional standards, including of those adopted by the Eurasian Interstate Council for Standards, Metrology and Certification. About 600 Russian standards have also been adopted. About 38% of Kyrgyz standards are harmonized internationally (36% in mid 2003), well behind the target of 50% harmonized by end 2003. The 2006-07 programme focuses on raising the harmonization rate to 70%, including harmonizing technical regulations in the areas of safety in transportation, foodstuffs, and building and construction materials, as well as developing 74 national product standards.

73. The Kyrgyz Republic and other CIS states adopted the International Program of Works on Harmonization of Interstate Standards With International and European Standards for 2004-06, which had been developed within the Eurasian Interstate Council for Standards, Metrology and Certification. The programme provides for the development of 1,100 interstate standards as the basis of technical regulations, and aims to improve product safety and competitiveness, remove technical barriers to trade, and protect the CIS market from low-quality and unsafe goods and services. It adopted An International Model for Technical Harmonization Based on Good Regulatory Practice for the Preparation, Adoption and Application of Regulations Via the Use of International Standards as recommended by the United Nations Economic Commission for Europe.57 In 2005, 384 interstate standards were amended and adopted as national standards, 222 had been harmonized internationally.

74. Certification, inspection rules, and procedures are applied uniformly to imports and domestic goods, according to the authorities, to achieve national treatment. Importers of goods subject to obligatory conformity certification with national safety requirements and other technical regulations must either undergo mandatory certification or have such a certificate on importation that is recognized by a local conformity assessment agency.58 Conformity assessments, compliance marks and test results for mandatory technical regulations issued by foreign bodies are to be recognized by these new procedures based on Kyrgyz international agreements. Recognition can be based on

54 Voluntary standards were distinguished from mandatory technical regulations, which apply on goods

that, for example, threaten the environment or human health and safety (Law on Protection of Consumers' Rights). 55 The list contains 2,089 10-digit HS tariff lines. 56 While not a member of the International Electrotechnical Commission (IEC), the Kyrgyz Republic

(NISM) was admitted to the IEC Affiliate Country Programme in December 2003. It has been a "correspondent member" of the International Organization for Standardization (ISO) since 2005.

57 The Kyrgyz Republic belongs to the CIS Inter-Governmental Council on Standardization, Metrology and Certification, which the ISO recognizes as a regional organization for raising the use of international standards.

58 Government Resolution No. 8 on Procedures for importation of products subject to mandatory conformity certification, 11 January 2006, which also covers recognition of overseas conformity assessment results. This legislation entered into force from July 2006.


bilateral, multilateral, or unilateral mutual recognition agreements, such as inter-agency agreements between standardization bodies.59 Acceptance of certificates issued by foreign bodies depends generally on the existence of such agreements. However, it is claimed, but rejected by Kyrgyz authorities, that many imports certified abroad as meeting international standards must undergo additional testing domestically, such as SES testing for harmful electromagnetic emissions of electronics equipment certified to international standards in Japan and Western Europe.60

75. The 2004 legislation recognizes voluntary accreditation of bodies conducting conformity testing and assessments of mandatory technical regulations. It permits recognition of accreditation and certification by third countries and internationally accepted bodies. However, the Government is still developing implementing resolutions aimed at establishing an independent national accreditation body. Regulations on self-declaration assessment, although allowed for in the legislation, are also being developed.

76. The National Institute for Standardization and Metrology (NISM) replaced the State Inspection for Standardization and Metrology (Kyrgyzstandard) as the national standardization body in 2004.61 Unlike Kyrgyzstandard, NISM no longer has regulatory and enforcement responsibilities, and will no longer be the national accreditation body. It is responsible for preparing and introducing standards, but is prohibited from issuing regulations enforcing standardization. The Kyrgyz Centre for Testing and Certification, a state-owned enterprise, was restructured and returned to NISM in 2005 as a separate subdivision responsible for conformity assessment.

77. MITT is responsible for implementing a uniform policy on technical regulation (Presidential Decree No. 149, 30 April 2005 and Government Resolution No. 267, June 2005). Its responsibilities include coordination of national activities to develop technical regulations, and to prepare proposals on international cooperation in this area. This includes ensuring Kyrgyz compliance with relevant WTO agreements.

78. Over 30 technical standardization committees have been established to examine standards under NISM's coordination. From April 2005, laboratories have been accredited according to ISO/IEC requirements so as to harmonize national accreditation procedures with international standards. NISM is seeking membership of the International Accreditation Forum (IAF) and of the International Laboratory Accreditation Cooperation (ILAC), in which NISM (Kyrgyzstandard) has been an affiliate member since 2002.62

59 The basic CIS agreements were signed in 1992 (Agreement to Perform Agreed Policy in the Field of

Standardization, Metrology and Certification, and on Principles for Performance and Mutual Recognition of Certification Works). The Kyrgyz Republic has since signed bilateral agreements on cooperation in standardization, metrology, and certification with the Russian Federation (1994), China (1995), Ukraine, Uzbekistan and Georgia (1996), and Kazakhstan (1997). Other countries with which it has mutual recognition arrangements include Iran, Slovak Republic, and Turkey as well as EU members.

60 World Bank (2005a), p. 50. 61 Presidential Decree on Actions for Further Improvement of the Structure of Central Bodies of

Executive Power, No. 39a, February 2004, and Presidential Decree No. 227, 13 June 2005. 62 In 2005, the Kazakhstan-based Central Asian Cooperation on Metrology, Accreditation,

Standardization and Quality (CAC MAS-Q) gained IAF observer status, and was recognized as a regional accreditation organization. CAC MAS-Q, established between the four national institutes of Kazakhstan, Kyrgyz Republic, Tajikistan, Uzbekistan, in 2003, aims to promote regional harmonization of metrological standards and rules, application of international standards, mutual recognition of results of conformity assessment (certification and testing) as well as procedures on accreditation and achievement of mutual recognition. It has developed a "road map" for obtaining international recognition in accreditation and certification. Each member of CAC MAS-Q has become an affiliated member of ILAC.


79. Imports of food and drinks are governed by the Instruction on Control of Import of Foodstuffs and Raw Materials, Including Alcohol and Non-Alcoholic Beverages and a certificate of compliance on safety regulations issued by NISM, in accordance with mandatory certification requirements.63

80. Imports of alimentation products must also be supported by a certificate issued by the Kyrgyz Ministry of Health certifying them to be free from biological contamination; imports from unknown producers are not allowed.64 All foodstuffs (including beverages) must have labels or attached descriptions of significant characteristics, including address of manufacturer, date of manufacture, and shelf life, in either Kyrgyz or Russian.65 From August 2004 until June 2005, sales, including imports, of alcoholic beverages and iodized salt were required to bear holographic marks to protect consumers, against counterfeit products, and domestic producers of these goods.66

81. The Plan on Preparation, Review and Introduction of Standards for 2006 was approved recently, and a draft National Standardization Strategy released. An action strategy programme has also been developed, until 2010, aimed at continuing work to establish a market-based national standardization system harmonized with international requirements. The NISM is the designated WTO enquiry point for the Agreements on Technical Barriers to Trade and SPS Measures. The Kyrgyz Republic (NISM) accepted the ISO/IEC Code of Good Practice on Development, Adoption and Application of Standards in August 2000. To improve transparency, the NISM manages a National Information Fund of Technical Regulations and Standards as a national source of information on Kyrgyz and international standards and procedures (Government Resolution No. 345, 11 May 2006). NISM also has a standards information centre.

(b) Sanitary and phytosanitary regulations

82. Domestic legislation, including mainly the 2005 Veterinary Law (replaced the 1998 legislation) and the 1998 Plant Quarantine Law, and the WTO SPS Agreement govern sanitary and phytosanitary measures (SPS).67 Various government agencies, including mainly the agriculture, health, and environmental protection ministries, handle SPS measures. The main body responsible for compliance with sanitary (veterinary) measures is the Department of State Veterinary Services of the Ministry of Agriculture, Water Resources and Processing Industry, which is planning to establish an SPS enquiry point. The Department of State Sanitary and Epidemiological Oversight is the main body in the Ministry of Health responsible for SPS measures.

63 Government Resolution No. 8, 11 January 2006 and Government Resolution No. 639,

30 December 2005. 64 Government Resolution No. 329 on sanitary and epidemiological control to ensure sanitary and

epidemiological wellbeing of the population exercised by the sanitary and epidemiological bodies and institutions, 6 June 2003.

65 Government Resolution No. 639, 30 December 2005 and Instruction on Rules to present Information on Foodstuff Labels in Kyrgyz or Russian languages, last revised 2003.

66 Government Regulation, Introduction of Additional Safeguard Measures to Prevent Illegal Turnover of Strong Alcoholic Beverages and Iodinated Salt, 2004) (removed by Government Resolution No. 205 on measures to ensure efficient operation of the alcoholic beverage industry, 6 June 2005).

67 The revised veterinary law was approved by the World Organisation for Animal Health (OIE). Other relevant legislation includes the Law on Chemicalization and Plant Protection (amended in June 2003 to reflect provisions relating to sale of pesticides and agri-chemicals), Law on Seeds (amended in June 2005), 1999 Law on the Environment, 2004 law on Fundamentals of Technical Regulation, and Government Resolutions No. 377 on Regulation on State Veterinary Inspectorate, 1992, and Instruction on Sanitary and Veterinary Requirements (last revised 2002).


83. Imports subject to SPS requirements need a phytosanitary or veterinary certificate irrespective of country of origin.68 Sanitary requirements on imports of animals and related products are approved by the Interstate Council on Cooperation in Veterinary Area among CIS states. These comply fully, according to the authorities, with the requirements of the World Organisation for Animal Health (OIE). There are plans to develop technical regulations on foodstuffs in 2006 that will comply fully with Codex requirements. No other sanitary requirements apply to imports, according to the authorities.

84. Import restrictions are to be supported by risk assessments of disease threats using scientific evidence. These are performed, where required, by the Department of State Veterinary Services on the basis of data received regarding the epizootic status of OIE A- and B-list highly contagious animal diseases, including analysis of the situation in the exporting country and probability of entrance of the pathogens into the Kyrgyz Republic. Imports of sheep and cattle meat and of such live animals are prohibited from countries prone to mad cow disease, foot-and-mouth disease, and other highly dangerous diseases.

85. The State Plant Quarantine Inspection Service, under the Agriculture Ministry, is responsible for regulating phytosanitary regulations.69 Plants, plant products, packing materials infested by a range of specified quarantine pests, plant pathogens, living insects, mites and nematodes, soil, living plants, straw, hay and grass used as packing materials are prohibited (except for breeding and research purposes).70 Regulated imports require an import permit, valid for 30 days, (in addition to a pyhtosanitary certificate) and must pass through specified border points. They include plants for planting (including seeds) of agricultural, forest, and ornamental plants; fruit and vegetables; and plant parts that may carry quarantine pests. Imported cut flowers must also be free of Frankliniella occidentalis and Liriomyza trifolii; fruit and vegetables must be fumigated or refrigerated from March to end-October; non-squared wood must be fumigated; grains must be free of Tilletia indica and Trogoderma granarium; and cotton fibre vacuum must be fumigated before despatch.

86. The Government has agreements on collaboration in plant quarantine with CIS states (1992), Ukraine (2003), Moldova (2003), and Kazakhstan, Tajikistan, and Uzbekistan (2000).71 It became an independent member of the European and Mediterranean Plant Protection Organization (EPPO) in 2000 (a member as part of the USSR from 1957). Plant quarantine regulations have improved as a result of being based more on international standards.72 Since 1998, the international system for seeds certification has been adopted and the State Seed Inspectorate's seed testing laboratory has been accredited with the International Seed Testing Association.73

87. The Kyrgyz Republic does not prohibit the import of genetically modified organisms (GMOs). It has no prohibitions on the production or import of products containing GMOs. Veterinary requirements apply to animal products, including of poultry, subject to natural or synthetic growth hormones.

68 Inspection in the exporting country, on which the certificate is based, must be within 14 days of departure.

69 Regulations include the Agricultural Ministry's Order No. 42, Import of Seeds of Agricultural Crops not included in the State Registrar of Varieties and Hybrids Allowed to be Grown, February 1998, Codes of Regulated Articles (Consignments), Products and Commodities that Must be Controlled by the State Plant Quarantine Inspection Service, December 1998, and Phytosanitary Regulations of the Kyrgyz Republic, June 2000.

70 Quarantine pests are divided into those that do not exist domestically and a few that existed in limited numbers (EPPO, 2001).

71 An agreement with Kazakhstan, Tajikistan, and Uzbekistan on cooperation in veterinary services was signed in November 2000.

72 ADB (2002), p. 6. 73 ADB (2002), p. 6.


(xii) Countertrade

88. Countertrade has declined substantially; it represented 0.2% of exports and 1.5% of imports in 2005 (Table III.3). The main items of countertrade were exported electricity, cement, roofing slate and light bulbs, and imported natural gas, mineral raw materials, and cast iron and steel. According to the authorities, Kyrgyz state-owned enterprises do not engage in countertrade. Prior to April 2003, the Kyrgyz Republic supplied electricity and water to Uzbekistan in exchange for gas but, since 2004, gas has been imported commercially (based on 100% cash payments) and no water resources have been supplied to Uzbekistan.74 It has also engaged in countertrade with Kazakhstan exchanging electricity for coal. Limestone and coal is also supplied by the Russian Federation to process sugar beet in exchange for refined sugar. The Government also acquired 63 Belarus tractors in 2002 in exchange for cotton fibre.75 The Agreement terminated in 2005.

Table III.3 Countertrade, 2000-05 (US$ million and quantities)

2000 2001 2002 2003 2004 2005a

Exports 4.6 2.4 4.5 2.3 2.1 1.3 % of total exports 0.9 0.5 0.9 0.4 0.3 0.2

Imports 19.5 25.8 33.7 22.4 18.8 16.5 % of total imports 3.5 5.5 5.7 3.1 2.0 1.5

Exports ('000 tonnes unless otherwise indicated)

Cereals and cereal products 0 0 0.1 0.06 0 0

Vegetables and fruit 1.4 0 0 0 0 0

Sugar, sugar-ware, and honey 0 0 0.03 0 0 0

Raw tobacco and tobacco waste 0 0 0.04 0 0 0

Textile fibres 0 0.04 0 0 0 0

Wool 0.03 0 0 0 0 0

Stone, sand, and gravel 0.1 0 0 0 0 0

Metal ores and scrap 1.7 0 0.1 0 0 0

Electricity (million kWh) 0 0 65.8 0 0.1 24.8

Cement 39.9 0 16.2 10.6 27.6 13.2

Roofing slate 20.8 0 8.2 22.7 15.7 4.6

Electric bulbs (mln. pieces) 41.8 34.0 27.0 13.4 1.4 3.2

Imports ('000 tonnes unless otherwise indicated)

Cereals and cereal products 0.2 0.1 0.1 0.1 0 0

Sugar, sugar-ware, and honey 0.3 0.1 0 0 0 0

Coal, coke. and briquettes 4.2 3.4 0 6.4 0 0

Petroleum oils 5.8 0 0 0.2 0 0

Natural gas (million m3) 293.2 445.6 569.4 437.6 375.0 382.3

Electricity (million kWh) 0.1 0.2 86.9 108.1 0.1 0.2

Non-organic chemicals 0.5 3.0 0.7 0 0 0.2


74 The 2005 Inter-government Protocol on Utilization of Water and Energy Resources of the Syrdariya

River basin provides for Kazakhstan to provide assistance in supplying gas to the Kyrgyz Republic for the Bishkek-based Heating Station (Article V).

75 Inter-Government Agreement on Barter Supplies of Goods on an Equivalent Basis in 2001-05 (30 May 2001).


2000 2001 2002 2003 2004 2005a

Volatile oils and perfumery 0 29.0 0 0 0 0

Raw materials for fertilizers and mineral raw materials 55.0 0 0 0 296.0 54.5

Primary form plastic 9.7 0.02 0 0 0 0

Paper, cardboard, and products from these materials 3.4 3.2 2.0 1.4 0 0

Cast iron and steel 0.2 0.2 0 0 0 4.0

Base metal products 0.02 0 0.9 0 0 0.7

Electric distribution equipment 0.1 0.2 0 0 0 0

Cars (pieces) 44 3 0 0 0 0

Motor vehicles 2 0 0 0 0 0

Trucks 42 3 0 0 0 0

a Preliminary, for first nine months.

Source: National Statistics Committee.

(3) MEASURES DIRECTLY AFFECTING EXPORTS

(i) Transit arrangements

89. The Kyrgyz is landlocked, and a government priority is to improve road and rail transit arrangements with neighbouring countries that have restricted its exports. Agreement on improved transit provisions has been a key aspect of bilateral and regional trade arrangements among CIS states.76 However, commitments on national treatment and on levying transit fees that reflect cost have been implemented unevenly by CIS states, especially on road transport.77 Bilateral transit and road transit agreements with Kazakhstan (1993) and Uzbekistan (1996) were also implemented poorly; Uzbekistan effectively withdrew from the 1996 agreement and both countries maintain transit barriers.78 However, under new transit agreements in 2003 and 2004, fully effective January 2005, Kazakhstan has eliminated all extra railway tariff charges on Kyrgyz traders, and charges domestic rates and allows permit-free transit of Kyrgyz trucks, which no longer have to pay a deposit at the border or require a customs escort. However, barriers remain.79 Customs and transit problems persist with Uzbekistan. For example, it introduced an entry and transit fee of US$300 per vehicle on Kyrgyz trucks from 2000, which was renewed in December 2003. Moreover, it introduced mandatory customs escorts on Kyrgyz trucks from 1 July 2004, with associated fees ranging from €50 to €200,

76 For example, transit conditions, including transportation charges, are to observe the principle of "free

transit", not experience "groundless delays or restrictions", and be non-discriminatory (Agreement on Procedures of Transit Through the Territories of CIS States, June 1999). ECAC members have also agreed on a Road Transport Union (although this is yet to be ratified by Belarus) to ensure legal, economic, and organizational conditions for free movement of freight and passengers by reaffirming national treatment for road and rail transport (1998). Bilateral agreements between the Kyrgyz Republic and selected CIS states also provide for "free" transit terms no "worse" than domestic operators and that transit charges be "economically substantiated". Transit arrangements agreed with China (Agreement Between Kazakhstan, Kyrgyz Republic, China and Pakistan on Transit Charges, 9 March 1995) were approved by the Kyrgyz Republic in May 2003 (Government Resolution No. 264, 7 May 2003).

77 World Bank (2005a), p. 60. 78 One survey found that Kyrgyz drivers transiting through Kazakhstan had delays of 2.5 to 7 days at

various checkpoints, compared with 2 to 13 hours for Kazakh drivers (USAID/Pragma, 2002). 79 Kazakh local authorities continue to impose various road taxes and fees; police harassment is

common as are bureaucratic delays intended to extract bribes (World Bank, 2005b, p. 150). In addition, despite general adherence to the 1999 CIS Agreement on Mass and Dimensions of Transport, which provides for unified axle weights, Kyrgyz truckers are at times forced to carry inefficiently small loads because Kazakh axle weight limitations discriminate against Kyrgyz hauliers.


depending upon distance of escort. Uzbek visa requirements for Kyrgyz drivers are also a matter of concern. The Kyrgyz authorities indicate that no restrictions or fees are applied to Uzbek trucks entering the Kyrgyz Republic.

(ii) Taxes, charges, and levies

90. The Kyrgyz Republic has no export taxes. A seasonal export tax of 100% imposed on wheat, wheat flour, and wheat-rye flour in July 1999 to ensure sufficient supplies for domestic manufacturers was terminated in August 2001.

(iii) Prohibitions, restrictions, and licensing

91. The authorities indicate that exports of treacle-molasses are no longer subject to prohibition (since 2004), which was aimed at ensuring adequate domestic supplies for processors (Government Order No. 58-p, February 2003).

92. Export licences, administered by the Ministry of Industry, Trade and Tourism, apply to a range of products for reasons of human safety and public health, environmental protection (including under international conventions), national security, and preservation of art, historical and archaeological treasures, and exhaustible natural resources. Goods include weapons; explosives; nuclear materials and technology for military use; virulent poisons; narcotics (including used in pharmaceuticals) and psychotropic substances; art works and antiquities with historical, cultural or scientific value; ferrous, precious, and rare-earth metals and their fragments80; and rare raw materials of vegetable or animal origin having pharmacological applications (Table III.4).

Table III.4 Goods subject to export licensing, 2005

Goods HS Codes

Wild animals 0106.0099.0 (wild birds listed in the Red Book endangered species list)

Herbal drug raw materials 1211 (aconite, hypericum, sea-buckthorn, flaxseed, licorice, thermopsis, dogrose, ephedra), 1301 (raw amberat), 1302 (licorice-juices and extract)

Cryptographic means (including cryptographic equipment, accessories for such equipment and software for encryption), normative and technical documentation for encryption means (including design and operational documentation)

8471 (only cryptographic equipment), 8473.3000.0 (only cryptographic equipment), 8543.9090.0 (only cryptographic equipment)

Armament, military hardware, special component parts for their manufacture, works and services in the area of military and technical cooperation

List of the Ministry of Defence

Means of protection from warfare agents, components and accessories


Military uniform, clothing and attributes List of the Ministry of Defence

Normative and technical documents for military products (design and operational documentation)


Means for carrying out military operations, ammunition 9306 (torpedoes, cartridges and other ammunition)

Gunpowder and explosives, explosive devices and pyrotechnics 3601 (except for hunting powder), 3602, 3603, 3604


80 Any manufacturing/mining or intermediary entity can apply for a licence to export ferrous, precious

and rare-earth metals extracted and/or processed in the Kyrgyz Republic. The licence application must include the contract and the applicable bilateral agreement on deliveries, if any, and explain the transaction's benefit to the Kyrgyz Republic. A non-transferable automatic licence would be granted within 20 days, either for single shipment (valid for six months) or multiple shipments (valid for 12 months).


Goods HS Codes

Nuclear materials, technologies, equipment and plants, special non-nuclear materials, sources of radiation, including radioactive waste


Materials, equipment and technologies intended for peaceful purposes but that can be used in creating weapons of mass extermination


Certain types of raw materials, equipment, technologies and scientific information which can be applied in creating weapons and military techniques


Precious metals, alloys, metals plated with precious metals, ores; concentrates; scrap and waste

2616 (ores and concentrates), 2843 (metals, amalgams), 3006.4000.0 (from precious metals only), 7106-7112, 7113.1100.0, 7113.1900.0, 7114.1100.0, 7114.1900.0, 7115.1010.0, 7115.9010.0, 7115.9090.0, 7118 (from precious metals only), 8544 (only with conductors from precious metals), 9003.1910.0, 9021.2910.0, 9111.1000.0, 9608.1030.0, 9608.3910.0 (only of precious metals)

Precious natural stones, powders and recuperate of precious natural stones

7101, 7102, 7103 (precious stones only), 7105 (from precious stones only), 7116 (from precious stones only).

Scrap and waste of non-ferrous metals 7404, 7503, 7602, 7802, 7902, 8002, 8101-8112

Drugs and psychotropic agents, highly toxic and intoxicative agents, precursors

List of the State Committee on Drug Control

Highly toxic poisons List approved by the President (Government Resolution No. 55, 6 February 1996)

Hazardous wastes List of the Basil Convention on the Control over Trans-border Transportation of Hazardous Cargo of 22 March 1989 (Parliament Resolution No. 304-1, 18 January 1996)

Duty and civil weapons List of Ministry of Internal Affairs


93. According to the authorities, except for non-ferrous metal fragments and waste, licensing is not intended to restrict exports but to control exports of stolen materials, such as telephone lines and power transmission lines.81 While export prices are reviewed in the licensing process, no minimum export prices apply.

94. The Kyrgyz Republic does not impose any UN-related economic sanctions on exports.

(iv) Tax incentives, subsidies, free zones, and export-performance requirements

(a) Subsidies and tax incentives

95. No direct export subsidies apply, including on agricultural products. These were bound at zero immediately upon WTO accession.

96. The Kyrgyz Republic has no income tax incentives for exporters. It has no export performance requirements; tax incentives based on export performance under the 1991 Foreign Investment Law have been terminated. Large export-oriented industrial enterprises can defer payment

81 WTO document WT/ACC/KGZ/26, 31 July 1998. Licences apply to waste and scrap of copper, nickel,

lead, aluminium, zinc, tin, wolfram, molybdenum, tantalum, magnum, cobalt, bismuth, cadmium, titanium, zirconium, antimony, manganese, rhenium, chrome, germanium, vanadium, beryllium, and niobium, as well as ores and concentrates of tungsten, molybdenum, and antimony concentrates and oxides.


of VAT on imported raw materials, components, and supplies for two months, under certain conditions.82

97. There are no drawback facilities for exporters. Instead, duty-free imports of inputs incorporated into exports is allowed under inward-processing arrangements. Products must normally be exported within one year, extendable to two years on request.

(b) Free economic (export-processing) zones

98. There are four free economic zones (FEZs); Bishkek, Karakol (the shores of lake Issyk-Kul), Maimak (Kyrgyz-Kazakh border) and Naryn (Kyrgyz-Chinese border). Of some 650 entities registered in these zones, 458 are in Bishkek, which is the only FEZ operating effectively. Comprehensive tax incentives apply in FEZs; entities are exempt from income tax and all customs duties (1992 Law On Free Economic Zones, last revised 2002).83 Imports into FEZs and goods produced in the FEZs and sold domestically are subject to standard import duties and domestic taxes.84 However, cases of abuse have surfaced, such as sale of imported fuel domestically, through FEZs, by a well-connected trading group without payment of excise tax.85 The authorities confirm that FEZs, especially at Karakol and Maimak, have become "black holes" for evading tax.86 Evidence also suggests that there is substantial leakage of sales from FEZs onto the domestic market without payment of all domestic taxes.87 FEZ firms also tend to be on average five to seven times more productive than domestic firms because of the improved business environment in FEZs (fewer regulatory burdens) and access to superior technology.

99. The Government is to abolish all FEZs except for Bishkek.

(c) Finance, insurance, and guarantees

100. Neither the Government nor its affiliated institutions provide export finance, and there is no public export insurance or guarantee system. In August 2000, Demir Kyrgyz International Bank signed an agreement with the EBRD to develop a trade financing programme.

(v) Promotion and marketing assistance

101. There are some limited export promotion programmes. The Export Development Programmes for 1999-02 and 2002-04 were adopted to diversify exports. The 2006-08 programme is currently being finalized, and will include efforts to improve export quality. The programme is expected to increase exports to US$761 million in 2007 and to US$820.0 million in 2008, mainly

82 The conditions are that the entity has suffered some natural disaster, technological catastrophe or other insurmountable circumstances; is facing a delay in state funding or payment; the goods are perishable; or the supplies are in accordance with inter-governmental agreements (Article 245 of the Tax Code).

83 Employees in FEZs pay income tax, and firms pay a fee of 2% of revenues to fund FEZ operations. 84 Government Resolution on Making Changes and Amendments to the Regulations on Free Economic

Zones, No. 373, June 1998. 85 The Kyrgyz Republic agreed at WTO accession to terminate by end-2002 exemptions from lease

payments for up to 15 years in FEZs for export-oriented and import-substitution producers using domestic raw materials and spare parts, and employing minimum staff.

86 To control such tax abuses, the Government suspended the excise tax concessions on imports of most petroleum products in FEZs in 2003 (Government Resolution No. 149, 20 March 2003). Moreover, parliament is considering amendments to the law on FEZs to control tax abuse (Government Resolution No. 250, 7 April 2006).

87 In 2003, approximately one third of FEZ production was sold domestically, down from three fifths in 2000 (World Bank, 2005b, p. 216).


through measures to increase manufactured exports, including highly processed products. An Export Promotion Council is also planned.

(4) MEASURES AFFECTING PRODUCTION AND TRADE

(i) Legal business framework, including licensing and registration

102. The business climate remains unconducive to private economic activity.88 Administrative barriers to doing business impose substantial delays and added costs. Business licensing and registration procedures are still cumbersome and overly bureaucratic, impeding investment and enterprise development, especially of small and medium sized entities.89 Streamlined registration requirements, however, have made starting businesses easier, and the number of licensed activities was reduced from 64 to 29 in 2001.90 While all licensing requirements were incorporated into the 1997 Law on Licensing, arrangements have been implemented haphazardly, and new licences adopted.91 Other laws also contain licensing provisions that are likely to violate the legislation.92 Many other registration requirements, e.g. experts' opinions and attestations, and permits (some unofficial), are still needed e.g. for health and sanitary, fire, architecture and construction, and land use, and are often imposed by governments (including local), without much control or scrutiny. While these are being tightened or removed, resistance is strong and many permits have been re-introduced.93 State inspections (e.g. by tax authorities) also impede business; new regulations in 2002 to curb inspections had limited effect. In 2005, the Kyrgyz Republic was ranked 84th (out of 155) overall in the World Bank's benchmarking business regulations survey.94 Legislative reforms are implemented slowly and enforcement seems to be inadequate.95

103. Corruption indicators remain high.96 This is despite anti-corruption legislation being passed in March 2003 and a Presidential Council on Good Governance established in February 2004. Corporate governance remains inadequate, despite efforts to improve the regulatory environment through legislation on joint-stock companies (2003), the securities market (1998), and on accounting

88 World Bank (2005a), p. 32. 89 The Kyrgyz Republic is still experiencing various forms of extreme government intervention in

entrepreneurial activity that is putting a brake on economic development and is a source of corruption, whereby the low effectiveness and continual increase in the number of checks carried out by regulatory bodies encourages both sides to play by secret rules and not by the law, thereby retarding competition and promoting the shadow economy (Resolution of the Economic Forum on Removing Barriers to Business, Bishkek, 31 May 2006).

90 To start a business, a legal entity has to register with the Ministry of justice, the National Statistics Committee, and the State Tax Inspectorate.

91 World Bank (2005a), p. 80. 92 Some 50 sector-specific laws have been drafted to cancel licences not covered by the licensing law

or to ensure consistent licensing requirements, but only 35 have been enacted (World Bank, 2005a, p. 81). Currently 120 documents are needed to commence operations (not all are required for every business) and a total of 33 licences.

93 World Bank (2005a), p. 82. 94 Rankings were particularly low in the sub-categories of dealing with licences (65th), hiring and firing

(63rd), paying taxes (135th), trading across borders (150th), enforcing contracts (147th), and closing a business (93rd) (Doingbusiness. Available at: http://www.doingbusiness.org). The EBRD-World Bank BEEPS, conducted in 1999, 2002, and 2005, also show deterioration in most indicators on doing business and corruption (EBRD-World Bank Business, 2002).

95 World Bank (2005a), p. 84. 96 The Kyrgyz Republic ranks 125th (out of 146) in Transparency International's Corruptions Perception

Index; 2.2 out of 10 indicated "rampant" corruption (Transparency International. Annual Report 2004. Available at: http://www.transparency.org/publications). The Kyrgyz Republic ratified the UN Convention Against Corruption in June 2004.


and auditing (2002) that requires all companies to apply international financial reporting standards progressively from 2007. A new bankruptcy law in 1997 (substantially amended in June 2002 to, inter alia, strengthen the role of the State Body on Bankruptcy Cases) is still considered deficient.97

(ii) Budgetary support and tax concessions

104. Direct agricultural financial support ceased from 1996, except for (currently) five special animal breeding farms, three stud farms, and two seed-producing farms. From 2003-05, total government support to these farms amounted to Som 13.4 million. Such support was partially replaced using loans from international institutions to provide subsidized low-interest farm credit for the purchase of key inputs, e.g. seeds, fertilizer, and equipment. In the WTO, the Kyrgyz Republic has bound domestic agricultural support at zero. Farm support is nevertheless provided by several schemes notified as "green box" measures exempt from reduction commitments, such as provision of general services, especially relating to animal and plant disease, seed inspection and irrigation repairs, and structural adjustment assistance provided through investment aids to promote reorganization of agricultural enterprises from the State to the private sector. This support totalled Som 55.7 million in 1998.98 The Government funds the provision of farm extension services under the Rural Advisory Service and its Agriculture Training Centre, as well as agricultural research, amounting to Som 7.7 million in 2001.

105. Farmers are also assisted by implicit price subsidies on irrigation. The water usage fee levied on farmers, at Som 0.03 per cubic metre (last increased in 1999), is substantially below actual recurrent expenditure on irrigation facilities by the Agriculture Ministry (Som 0.06 per cubic metre), implying an annual net indirect budgetary transfer to farmers of Som 195.2 million (US$4.4 million).99 The real transfer, taking into account the real costs of irrigation including all capital and operating expenses) is much higher, estimated at Som 901.1 million (US$20.5 million) annually, based on a full cost of Som 0.2 per cubic metre.100 Thus, irrigation charges would need to increase over sixfold to fully recover costs (Chapter IV). Use of agricultural machinery and equipment is also implicitly subsidized through the leasing and hiring of services provided by the parastatal AiyilTechService, which receives high levels of government support (mainly from off-budget grants), and is the dominant (if not sole) formal importer and wholesaler of farm machinery. It is slated for privatization in 2006.101 Lease and hire fees charged to farmers are well below commercial charges and cost recovery. In addition, lease payments by farmers are chronically in arrears.102

97 World Bank (2005a), p. 84. The laws on bankruptcy and joint-stock companies have "medium

compliance" with international benchmarks (EBRD Insolvency Sector and Corporate Governance Sector Assessment Projects, 2003 assessment).

98 WTO document G/AG/N/KGZ/1, 4 November 1999. 99 World Bank (2004a), p. 42. The new Water Code adopted in January 2005 transferred the

responsibility for setting irrigation charges from parliament to the Government. Only about 20% of the expenditure of the Department of Water Resources is financed by water charges.

100 Water charges are also poorly collected and frequently fall below annual targets. Total arrears were over Som 65 million at end 2001 (World Bank, 2005a, p. 142). In 2005, water charges collected amounted to Som 64.2 million, and a substantial share (almost half) was still paid for in agricultural produce.

101 Government support covers the provision of farm equipment to Aiviltechservice costing some US$3.0-3.5 million annually from 1997 to 2002 for nominal payment, and use of interest-free credit from Japanese grant funds to buy equipment; its mandate to provide farm inputs terminated in 2000 (World Bank, 2004a, Annex 3). In 2001, for example, Ailtechservice received tractors worth Som 140 million from the Government but paid only Som 10 million.

102 Some 40-50% of lessees are in arrears (World Bank, 2004a, Annex 3).


106. Farmers are also taxed lightly.103 Farm inputs, including fertilizers, are exempt from VAT, and smuggling of agri-chemicals and other inputs has flourished, especially of fertilizers at subsidized prices from Uzbekistan including by cotton farmers to avoid paying tariffs.104 It is estimated, for example, that as much as half of all fertilizer used is smuggled.105 The Government continues to provide fertilizers and pesticides directly, often using donor support, and this has hampered the growth of private traders. Farmers are levied a relatively low land tax, and arrears are high, amounting to Som 54 million as of January 2003. Government efforts to raise the land tax have been rejected by parliament.

107. Insurance companies benefit from a concessional income tax rate of 5% of total premiums received in order to develop the insurance market.

108. Many enterprises have accumulated large government debt. Total outstanding government budgetary loans amounted to Som 17.2 billion (US$364 million) at end 2000, and Som 12 billion (US$285 million), equivalent to 15% of GDP, in mid 2003.106 Over 90% of budgetary loans and 20% of government guaranteed direct foreign credits remain overdue, with bankrupt firms owing about one third of outstanding debt.107 Government guaranteed foreign debt to firms is also substantial, amounting to US$50 million in 1999.108 Many firms also have substantial social security and tax arrears. New budgetary loans have not been allowed since 2001.

(iii) State-owned enterprises and privatization

109. State-owned enterprises remain important, despite several stages of privatization since 1991 (Table III.5).109 The private sector's contribution to GDP rose from 30% in 1994 to 65% in 2003 and to 75% in 2005 (Table I.2).110 Privatization, however, stalled in the late 1990s, but was re-started with new legislation in 2002 (Law on Privatization of Public Property).111 Two-year privatization programmes began in 2001-03 (Government Resolution No. 576, September 2002), and the Government's State Property Privatization Programme for 2006-07 (Government Resolution No. 91, 13 February 2006) was approved by parliament in June 2006. The State Property Committee handles

103 World Bank (2004a), Annex 5.5. 104 The Kyrgyz Republic relies on imported agri-chemicals and fertilizers and while such smuggling

benefits farmers by access to them at lower prices, it does so unevenly, dampens development of formal trade by undermining legitimate private traders, and contributes to tax evasion. Moreover, the lack of rural credit also requires farmers who purchase fertilizers formally to use barter, amounting in the case of cotton growers to a price increase of 62% (World Bank, 2005a, p. 106).

105 ADB (2002), p. 18. 106 ADB (2001), p. 15 and ADB (2003), p. 9. 107 These figures are likely to understate the debt position of firms as many government loans have

been rescheduled on highly soft terms, often to already insolvent firms with little prospect of repayment. A significant share represents outstanding credits extended to farmers from 1992 to 2003, estimated at US$15.4 million by January 2004 (Sulaimanova, 2004, p. 4).

108 On occasions, these contingent liabilities have had to be financed, such as when JSC Oremi defaulted on the loan with the Islamic Development Bank, and the Government as guarantor had to repay it.

109 The first stage (1991-93) focused on "smaller privatizations" and about 4,700 small SOEs were fully privatized. In the second stage (1994-97), about 1,300 large and medium-sized SOEs were privatized by corporatization as joint-stock companies and divested largely through voucher sales ("mass privatization"), competitive bidding or direct sale. The third stage (1998-00) covered mainly strategic mining and power engineering businesses on a case-by-case basis.

110 As at January 2006, some 70% of the 9,989 SOEs registered in 2001 had been privatized, most of these before 2005. The private sector accounted for 88.4% of industry, 59.0% of construction, 59.3% of transport, 97.6% of trade and public catering, 99.8% of consumer services, and 49.9% of other industries.

111 Starting 1998, the privatization programme must be approved by parliament and periodic progress reports prepared.


privatization, and operates the State Privatization Fund. Divestment is by auction, bidding, lease or direct sale. Privatization receipts to July 2005 totalled Som 1.6 billion (Som 140.2 million in 2005), of which 85% accrued to the national budget and the remainder to the State Privatization Fund.

Table III.5 Privatization by sector and type, 1999 and 2001-04 (Number of enterprises sold or privatized)

Sector/type 1999 2001 2002 2003 2004a

Privatization by sector 6,656 6,985 6,992 7,070 7,107 Industry 510 521 535 535 535 Consumer services 1,933 1,936 1,936 1,936 1,936 Non-productive sphere 22 24 24 25 26 Trade and catering 1,897 1,914 1,915 1,915 1,915 Agriculture 362 368 379 379 380 Construction 425 429 430 430 430 Transport 165 167 172 172 174 Other branches 1,342 1,536 1,601 1,678 1,711

Privatization by type 6,656 6,886 6,983 7,061 7,098 Conversion to joint-stock company 1,647 1,663 1,677 1,678 1,680 Rented to subsequently purchase 110 121 134 151 155 Sale through commercial competition 1,196 1,202 1,231 1,254 1,266 Conversion to limited joint-stock company 215 221 223 223 223 Sale to private parties and workers' collectives 2,990 3,163 3,192 3,199 3,208 Auctioned 498 516 526 556 566

a Until 10 September.

Note: Figures are cumulative and exclude privatized housing. Totals differ by type and sector.

Source: IMF (2005), Kyrgyz Republic: Statistical Appendix, Country Report No. 05/31, February, Table 15, p. 17.

110. Privatization of certain activities is prohibited for reasons of safety, security, health, social development, or environmental protection, or to secure state monopolies (2002 Law on Privatization and Government Resolution No. 91, 13 February 2006). These activities include minerals, including gold (KyrgyzAltyn), timber and water resources, roads and railroads, bus stations, post office, higher education institutions, spirits (alcoholic) production (excluding beer), and electricity generation and transmission.112 Others, that are to remain state owned until decided otherwise, are high-voltage energy supply networks over 35 kV; specialized road-operating enterprises, including maintenance; engineering infrastructure; water-gas supply; sewerage; and heating. Other property can be privatized, based on a decision by the Government (including enterprises for rare-earth and non-ferrous metal ores processing, and timber enterprises) or the State Property Committee. Foreign investors can participate freely in privatizations (except for purchasing land). The Government may use "golden shares" in "exceptional cases" to protect key state strategic interests when converting SOEs into joint-stock companies.

111. Some two thirds of SOEs are majority state owned (SOEs comprised 111 joint-stock companies and 10 limited liability companies as at January 2006) are majority state owned.113 These include Kyrgyztamekisi (99.1% state owned), Kyrgyztelecom (77.8%), Kyrgyzgasmunaizat (82.1%), Kyrgyzgas (82.1%), Severoelectro (80.5%), KyrgyzAltyn (100%), and the National Air Carrier

112 The Constitution requires all natural resources, including minerals, water and forests, to be state owned (Article 4). These activities cannot be privatized (Article 3, Law on Privatization and Denationalization). Such property can, however, be leased.

113 In 2001, there were 248 SOEs (14 fully state owned).


Kyrgyzstan Aba Joldoru (NACKAZ) (81.4%). While over 70% of SOEs have been privatized, the most significant, and politically more difficult, remain. Recent programmes have listed for privatization tourism facilities and "strategic" enterprises approved by Parliament, such as in the electricity sector, including distribution (Kyrgyzenergo, Severelektro, Vostokelektro, Oshelektro and Jalal-Abad Electro), Bishkek heating system, Kyrgyzstan Aba Joldoru, Kyrgyzgas, and Kyrgyztelecom.114 However, little progress has occurred, and several of these key privatizations, such as of Kyrgyztelecom and Severelektro, were halted at the last moment, but are now being pursued again (Chapter IV). While privatization of several mining SOEs are prohibited, KyrgyzAltyn was reorganized into a joint-stock company in 1999, and its 66% holding in the Kumtor gold mine was reduced to 33.3% in 2005 and subsequently to 15.7% (Chapter IV).

(iv) Competition policy and price controls

112. The National Agency for Anti-monopoly Policy and Competition Improvement (formerly the State Department for Antimonopoly Policy of the Trade Ministry) administers competition legislation.115 Although in principle the body is now an independent agency under the President's Office that reports to the Prime Minister (Presidential Decree No. 448, 10 October 2005), in practice its autonomy is uncertain. It covers goods and services (excluding banking) supplied by private and SOEs, including natural and permitted monopolies (see below). It aims to prevent "monopolistic" (anti-competitive) activity, including abuse of dominant market position (35% or more market share), and unfair competition.116 A dominant business entity must not conduct activities to limit competition, such as restricting production or sale of goods to create an artificial shortage or to raise prices, creating market-access obstacles for other entities, imposing exclusive customer conditions, or setting monopolistically high or low prices, including predatory pricing.117 Competition-limiting agreements among dominant firms, such as price fixing, discriminatory pricing, and market separation, are investigated and prohibited unless approved by the Antimonopoly Agency as conferring positive net benefits. It can "coercively split" dominant firms that limit competition. Local governments must not take anti-competitive actions, including discriminatory treatment of suppliers, such as unjustifiably providing selective tax, credit, and other concessions; restricting foreign firms' operations; or providing financial and other concessions to unprofitable firms, contrary to public interests. Unfair competition covers misuse of intellectual property, such as infringing patents, illegally using trade marks, providing imprecise or false details to confuse consumers on the product or place of origin, and manipulating prices to limit competition.

113. The Agency regulates natural and permitted monopolies.118 Natural monopolies (single supplier due to technological factors) and permitted monopolies (35% or more of the market, or other, lower share set by the Agency) are listed annually in the state register.119 Monopolies cover goods

114 List of basic, strategically significant branches of economics, privatization of which is being carried out in accordance with conceptions, programmes or individual projects adopted by Parliament.

115 Law on Restrictions of Monopolistic Activities, Development and Protection of Competition 1994. New draft legislation, the Law on Competition, was recently revoked for further development, and is being revised.

116 The Agency may specify another, lower market share for determining "dominance" where the firm has sufficient power to critically influence the market. For example, in 2001 the dominance level for tobacco and kidney beans was set at 20%. Currently there are no such determinations.

117 Monopolistically high prices compensate for unjustified expenses from capacity under-utilization or raise profit by reducing the product's quality. Monopolistically low prices are monopsony practices boosting profit or compensating for unjustified costs at the seller’s expense, or selling at a loss to displace competitors.

118 Law on Natural and Permitted Monopolies, September 1999, revised December 2004. 119 In 2004, eight entities were added to the state registry and one was excluded. Permitted monopolies

also include entities regulated to control prices, aimed at curbing inflation or in sectors important to public welfare.


and services. Non-natural permitted monopolies are covered by profit caps of 25% to 50%. Natural monopolies are subject to price or profit controls, or both.120 Mandatory minimum services may also be prescribed. Monopolies must supply only specified products, to prevent having a monopoly on complementary goods, and must not suspend supply to create a shortage or engage in cross-subsidies.

114. The annual list of sanctioned monopolies (called the state roster of subjects of natural and allowed monopolies) contains the majority state-owned joint-stock companies of Kyrgyzstan Aba Joldoru (air services), Kyrgyzneftegaz and Kyrgyzgaz (oil and gas), Kyrgyztamekisi (tobacco products), and state-owned enterprises Chui Enterprise (bus stations), Kyrgyz Temir (iron, steel and non-ferrous scrap), Kyrgyz Temir Jolu (railway transportation and train maintenance), Bishkek International Airport, KyrgyzAir Navigation Service, alcoholic producing plants majority-owned by Alkoprom, cement plants, construction monopolies, sugar plants, 12 energy companies and three telecommunication companies. There are, in total, three sanctioned natural monopolies and 41 authorized monopolies. In addition, there are sanctioned regional natural monopolies (49 in 2000) and permitted monopolies (39 in 2000). In 2004, prices and tariffs were set on 438 products and services of sanctioned monopolies. Sanctioned monopolies must cease illegal activities, pay fines, refund the losses inflicted on other parties and are subject to expropriation of illegal profits.

115. The Agency also curbs unsubstantiated economic concentration through mergers and acquisitions.121 Mergers are covered if their combined asset value for the recent fiscal year exceeds 100,000 times the minimum monthly wage (Som 100), and share acquisitions that exceed 20% of the firm's authorized capital. These are to be notified to the Agency, which has 30 days to make a decision. Mergers and acquisitions are not approved if found to reinforce or establish a dominant position and as a result restrict competition.

116. Agency decisions, including cease and desist orders, may be appealed to the courts, and it may impose economic sanctions and fines. Losses incurred by other entities from illegal actions can be reimbursed through civil legislation. Firms must cease illegal activities and pay such profits to the government. Maximum fines (doubled for repeat offences) can be levied on both entities and responsible individuals.

117. There are currently no authorized cartels in the Kyrgyz Republic, according to authorities. Reemtsma-Kyrgyzstan JSC (a joint venture between an overseas company and Kyrgyztamekisi, the state regulator of the tobacco industry) has exclusive rights to produce cigarettes for ten years and the right to set prices for its products independently, i.e. until 2008.122 Reemtsma-Kyrgyzstan is also on the list of sanctioned monopolies.

118. The Agency enforces legislation aimed at protecting consumer rights. The Law on Advertising covers products and services, including securities, banking, and insurance, and aims to protect consumers against unfair competition in advertising, including misleading advertising. The Law on Protection of Consumer Rights covers goods and services. It protects consumers against development of monopolies and encourages competition by prohibiting illegal and discriminatory practices that undermine fair and honest competition.

120 For example, the JSC Kyrgyzalco and Kyrgyztamekisi, which have approximately 60% and 16% of

the respective alcoholic and tobacco markets, are subject to 20% profit caps and must declare prices to the Anti-monopoly Agency.

121 It also controls liquidation of commercial entities, as well as compliance with anti-monopoly legislation during purchase of shares of the "charter" capital of companies (Government Resolution No. 128, 15 March 2005), subject to threshold requirements.

122 Government Resolution on Measures Regarding Support and development of Cigarette Manufacturing, No. 18, January 1998.


119. The Agency currently regulates the state gas and energy monopolies, fuel, and telecommunications, including prices; profit margin ceilings are set at 5% (Resolution No. 50, 10 May 2000) (Chapter IV).123 Its main goals in regulating the fuel and energy sectors are to strike a balance between consumer and producer interests, and to facilitate competitive markets. The Agency controls petroleum prices through profit margin ceilings for six companies (Munai Myrza Oil LLC, Munai Myrza Opt LLC, Munai Myrza Vostok, Munai Myrza Zapad, and Munay Myrza Yug). The Government subsidizes household heating and hot water costs. Prices of urban water, sewage, and public transport are set by city or oblast administrations and are regulated as sanctioned monopolies by local anti-monopoly offices. Domestic passenger flights and fares of the national air carrier Kyrgyzstan Aba Joldoru (NACKAZ) are regulated by the Anti-monopoly Agency. Most other prices, including agricultural, were deregulated early in the country's economic transition.

(v) Intellectual property rights

120. Government policy is to continue to develop modern intellectual property protection. The Civil Code (Section V, effective from March 1998, revised 2003) established exclusive intellectual property rights and protection over copyright (Chapters 54 and 55), patents (Chapter 56), plant and animal breeding (Chapter 57), undisclosed information from illegal use (Chapter 58), trade names, trade marks, and appellations of origin of goods (Chapter 59).

121. Specific laws also cover patents (effective 4 February 1998); patent attorneys (28 February 2001); secret inventions (31 March 2006), copyright and neighbouring rights (23 January 1998, revised 2003); trade marks, service marks, and appellations of origin (28 January 1998, revised 2003); PC, software programs, and databases (4 April 1998); topology of integrated circuits, and commercial secrets (10 April 1998); service inventions, utility models, and industrial designs (16 July 1999); trade names (23 December 1999); and legal protection of selective breeding achievements (13 June 1998, revised 27 February 2003 and 31 March 2005) (Table II.1).124

122. The authorities believe that Kyrgyz legislation, as reviewed by WTO Members, complies fully with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The State Intellectual Property Agency (also known as Kyrgyzpatent), established in 1996, administers the legislation and registers patents, trade marks, industrial designs, copyrights and associated rights, and plant and animal breeding varieties. Along with the Trade Ministry, it is a WTO contact point under TRIPS.

123. The Kyrgyz Republic acceded to the World Intellectual Property Organization (WIPO) in February 1994, and belongs to the main related international treaties, including the Patent Law Treaty (2005), the Nairobi Treaty (2004) and the Madrid Protocol (2004) (Table III.6).125 International agreements prevail if provisions differ from domestic legislation. The Kyrgyz Republic belongs to the CIS Interstate Council for Industrial Property Protection and the Eurasian Patent Convention. Kyrgyzpatent has signed bilateral agreements on industrial property protection with a number of

123 The 2004 amendments to the 1994 Law on Restrictions of Monopolistic Activities, Development

and Protection of Competition transferred the anti-monopoly functions in communications and energy (excluding heating) to the sectoral regulating bodies, namely the State Agency for Energy and the National Communications Agency. However, the right to regulate these services, including prices, reverted to the Anti-monopoly Agency in 2006 (Presidential Decree No. 57, 13 February 2006).

124 The legislation was notified to the WTO and examined by the Council for TRIPS. 125 The Kyrgyz Republic belongs to 20 of the 23 WIPO-administered treaties. It is not a member of the

Film Register Treaty (International Registration of Audiovisual Works) or the Washington Treaty (Intellectual Property in Respect of Integrated Circuits, not yet in force); it is considering joining the Brussels Convention (Distribution of Programme-Carrying Signals Transmitted by Satellite).


countries, including the Russian Federation, Kazakhstan, Uzbekistan, Armenia, Azerbaijan, and Turkey.

Table III.6 Kyrgyz membership of international treaties on intellectual property, 2005

International treaty Date of entry into force

WIPO Convention 25 December 1991

Madrid Agreement (marks) 25 December 1991

Paris Convention (industrial property) 25 December 1991

Patent Cooperation Treaty 25 December 1991

Nice Agreement (international classification of goods and services) 10 December 1998

Locarno Agreement (international classification for industrial designs) 10 December 1998

Vienna Agreement (international classification of the figurative elements of marks) 10 December 1998

Berne Convention (literary and artistic works) 8 July 1999

Strasbourg Agreement (international patent classification) 10 September 1999

UPOV Convention 26 June 2000

WIPO Copyright Treaty 6 March 2002

Trademark Law Treaty 15 August 2002

WIPO Performances and Phonograms Treaty 15 August 2002

Phonograms Convention 12 October 2002

Hague Agreement (international deposit of industrial designs) 17 March 2003

Budapest Treaty (deposit of micro-organisms) 17 May 2003

Rome Convention (performers, producers of phonograms and broadcasting organizations) 13 August 2003

Madrid Protocol (international registration of marks) 17 June 2004

Nairobi Treaty (olympic symbol) 18 November 2004

Patent Law Treaty 28 April 2005


124. The Kyrgyz Republic has registered 1,902 inventions (1,502 Eurasian patents), 1,558 industrial designs, 6 utility models, and 37,171 trade marks (30,587 registered under the Madrid Agreement) (Table III.7).

Table III.7 Intellectual property statistics, 2001-05 (Number)

2001 2002 2003 2004 2005a Type of intellectual property App. Reg. App. Reg. App. Reg. App. Reg. App. Reg.

Patents

- inventions 92 60 128 65 180 96 149 121 122 95

- utility models 6 9 8 6 10 5 9 7 3 5

- industrial designs 18 8 12 5 18 9 21 15 35 15

Trade marksb 2,489 (2,102)

295 2,128 (1,809)

368 2,328 (1,934)

471 2,617 (2,139)

331 2,961 (2,491)

34

a Until December. b Figures in brackets refer to applications under the Madrid Agreement (i.e. from overseas).

Note: App. = applications; Reg. = registrations.



(a) Copyright and related rights

125. Protection for copyright and related rights covers the creation of works of science, literature, arts, invention, and other products of intellectual activity, including literary, artistic, audiovisual, and musical objects as well as computer software and databases, which are also covered by separate legislation. Protected rights include exclusive moral and economic rights. Neighbouring rights apply to performers, broadcasting organizations, including cable distribution, and to phonogram producers, in accordance with international agreements. The term of copyright is for the author’s life plus 50 years, and for 50 years for neighbouring rights. Copyright violations are subject to civil, criminal, and administrative sanctions. This includes restoration of the situation, cessation of illegal acts, and payment, at the owner's request, of either damages, illegally obtained revenue or indemnity set at between 20,000 and 50,000 times the minimum monthly wage (Som 100). Imprisonment can be for up to three years (five years for repeated offences). Court injunctions can prohibit illegal activities, and such works and related equipment may be confiscated.

(b) Patents

126. Patents for inventions are protected by exclusive rights for 20 years from the priority date (generally filing date of application if all necessary documentation is supplied), extendable to 25 years for pharmaceuticals. Foreign residents must file applications using a local patent agent registered by Kyrgyzpatent. An invention is patentable if it is new and industrially applicable. The courts can issue non-exclusive compulsory licences if an invention is insufficiently used (within three years), and the Government may do so in emergencies (disasters, catastrophes, and big accidents), in the interests of national security, for non-commercial use, or if necessary to correct an anti-competitive situation. No compulsory licences have been issued. The right-holder may ask for the violation to be stopped, products to be confiscated, and for the offender either to indemnify losses (including lost profit and compensation for moral damage), pay the illegally obtained income, or provide compensation of 10,000- to 50,000-times the minimum monthly wage (Som 100). Imprisonment can be for up to three years (five years for repeat offences).

(c) Utility models and industrial designs

127. Utility models and industrial designs are covered in the Patent Law, the 1999 Law on Services Inventions, Utility Models and Industrial Designs, and the 2006 Law on Secret Inventions. Protection is for five years (extendable to eight) for utility models and ten years (extendable to 15) for industrial designs from the application date.

(d) Trade marks and other marks, including trade names

128. Registration of trade marks (including service marks and collective marks) is valid for ten years from the priority date (generally filing date of application if all necessary documentation is supplied), renewable for further ten-year periods. Foreign residents must file applications through a local patent agent registered by Kyrgyzpatent. Registration may be withdrawn if the mark is not used for three years. Trade marks that are sufficiently similar to cause confusion with well-known trade marks may not be registered. Trade marks are protected by civil, administrative, and criminal sanctions. Civil remedies cover ceasing the infringement, recovering resulting losses, and destruction of illegal goods or services. Imprisonment for up to six months may be imposed for illegal use of a trade mark.


129. Registered trade names are protected for ten years, renewable for further ten-year periods.126 Civil, administrative, and criminal sanctions apply. Foreign legal entities may register their trade name through a local patent agent registered by Kyrgyzpatent.

(e) Geographical indications

130. Geographical indications (appellation of origin) cover historical names of a geographical region, and may be registered for ten years, renewable for ten-year periods. Foreign residents must file applications using a local patent agent registered by Kyrgyzpatent. Geographical indications are protected by civil, administrative, and criminal sanctions. Remedies include ceasing the infringement; reimbursement of losses, and payment to the Government of any profit exceeding losses, recovered; and removal of labelling from products. Kyrgyzpatent maintains a list of national geographical indicators, such as for mineral waters.

(f) Layout designs (topology) of integrated circuits

131. Exclusive economic rights are provided for the use of registered topologies for ten years from the application date for registration or first use, whichever is the earlier. Foreign residents must file applications using a local patent agent registered by Kyrgyzpatent. The registered owner may demand cessation of illegal use and restoration of the situation, including reimbursement of losses, including the amount of unlawful revenues. Fines of up to 10% of the losses awarded may also apply. Illegal copies and related equipment can be confiscated.

(g) Plant variety protection and commercial secrets

132. Protection for plant varieties and animal breeds is provided under the 1998 Law on Legal Protection of Achievements in (Biological) Selection. Protection for plant varieties is for 20 years from the date of registration in the State Register of Protected Breeding Achievements; protection for grapes, arboreal decorative, fruit crop, and forest trees, including their stocks, and animal breeds, is for 25 years.

133. Commercial secretes are protected by separate legislation that imposes obligations on employees to safeguard commercial secrets. Such information must have actual or potential commercial value to third parties due to its secrecy, not be accessible legally, and be kept confidential by the owner. Civil and criminal sanctions apply. The Civil Code also protects undisclosed information, which is a trade secret, and also obliges a commercial representative to keep confidential all information learned about sales transactions, even after cessation of employment. Damages are available for misappropriation by persons obtaining such information illegally or divulging it in violation of a contractual obligation. Imprisonment for illegally acquiring a trade secret can be for up to six months. The Criminal Code also provides penalties for copying information from computers.

(h) Parallel imports

134. Both patent and copyright legislation allows for the exhaustion of intellectual property rights, thereby, in practice, apparently allowing parallel imports and not sanctioning sole distributorships.127 The Customs Code does not, however, refer to parallel imports. In practice, given the poor record of

126 Non-registered trade names, including of foreign legal entities, may also be protected where they are

publicly recognized due to continuous and intensive use in the Kyrgyz Republic. 127 Article 16 of Law on Copyright and Related Rights and Article 13(4) of the Patent Law.


Customs in detecting counterfeit products (see below), the legality of parallel imports has not become an issue.128

(i) Enforcement

135. Intellectual property is protected by civil, administrative, and criminal sanctions, where applicable under relevant legislation. The Civil Code provides court relief to enforce obligations recognized by civil rights, including court orders for specific performance of an obligation, compensation for losses, and penalties. Recovery of losses includes both direct and consequential damages, and lost profits, as well as of illegal profits. Compensation for moral rights is also available, including protection of honour, dignity, and business reputation. Under the Civil Code, administrative enforcement of rights is exercised only in cases stipulated by law, and such decisions can be appealed to the courts. The Appellate Council reviews decisions by Kyrgyzpatent on patents, trade marks, and appellations of origin. Anti-monopoly legislation also prohibits mis-use of intellectual property. The 1997 Criminal Code detailed the offences of violating copyright, neighbouring rights, and patents, and illegal use of trade marks and appellations of origin (Articles 150 and 191).

136. An Extended Committee, formed in 1999, helps coordinate efforts to protect and enforce intellectual property. Checks and raids to detect illegal audio and video activities have been intensified, and a special unit to fight intellectual property infringements was established in the Ministry of Foreign Affairs. An Inter-Agency Committee on Combating Infringements of Intellectual Property Rights was also established in 2004, but its activities have dwindled; these are to be restored.129 It has two working groups, one on audio, video and software, and the other on medical and food products. According to studies by the Kyrgyzpatent's Related Rights Centre, the incidence of pirated audiovisual products has been reduced, but remains high at 88% in 2005 (90% in 2004). According to the authorities, police seizures have increased substantially. The authorities indicate that the relatively high prices of licensed products and the limited number (two) of official right-holders encouraged consumption of illegal copies.

137. The Customs Code provides for border measures on intellectual property: these allow for the suspension of the release of goods if intellectual property rights appear to have been violated. The right holder must apply to Kyrgyzpatent and to Customs to have the products included on the registrar of products subject to customs control. Customs may then seize the suspected pirated products temporarily.130 There have been no such cases (no applications from right holders). Customs also have ex officio powers to suspend clearance of suspected counterfeit goods.131 However, weak enforcement of intellectual property appears to be a regional problem, as well as a major Kyrgyz problem. Despite these new enforcement powers by Customs, and many regional agreements covering intellectual property, the incidence of imported pirated copyright and trade mark products in the Kyrgyz Republic still seems high, and no cases have been filed with the CIS Economic Court. Moreover, Kyrgyz Customs have never used their powers to prevent illegal imports. Enforcement of intellectual property at the border therefore seems to be a major weaknesses, since most pirated

128 Allowing parallel imports provides greater competition and benefits consumers and the economy

generally, by lowering prices. It is therefore in the interests of the Kyrgyz economy to ensure that the necessary enhancement of border enforcement of pirated products does not impede parallel (legitimate) imports.

129 Government Resolution No. 93, February 2004. The Committee includes deputy ministers, heads and deputy heads of law enforcement bodies.

130 Suspension is for ten days, extendable to 20 days, during which the right-holder must provide proof of initiation of court proceedings against the importer. The right-holder may have to provide a security sufficient to cover the importer's losses.

131 Government Resolution on Approval of Regulation on the Procedure of Customs Control over Goods Containing Intellectual Property Objects, No. 694, November 2000 and Article 349 of the Customs Code.


products in the Kyrgyz Republic are claimed to be imported from neighbouring countries (China, Kazakhstan, the Russian Federation, and Ukraine) through formal channels (rather than smuggled) and sold through major retail outlets.132 Questions also arise as to the competence of courts, and the judicial system generally, to handle intellectual property cases.

132 However, given that substantial smuggling of these products already exists, stricter enforcement

efforts by Customs to prevent pirated imports may be frustrated, at least in the short term, by more smuggled illegal goods.

wt/tpr/s/170 trade policy review page 42 - wto

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