Kyrgyz Republic and Structural Reforms: Twenty Years of WTO Membership

Table 2. The evolution of commodity turnover of the Kyrgyz Republic with its main trading partners (in mln of US doll.)

Source: National Institute for Strategic Studies of the Kyrgyz Republic. URL: http://nisi.kg/112-stati/517-analiz-uchastiya-kyr-gyzskoj-respubliki-na-platforme-vto.html (accessed: 12.08.2019).

Fig. 3. Dynamics and structure of exports of the Kyrgyz Republic with EAEU, CIS and WTO in 1998-2017

Source: Ministry of Economy. URL: http://mineconom.gov.kg/en (accessed: 20.09.2019).

The share of trade with the main trading partners of Kyrgyz Republic in the CIS, as well as within the economic space of the EAEU remained relatively steady with some exceptions. Trade with the Russian Federation increased 5 times from 287.8 to 1,456.6 min US$, and with Kazakhstan 5.5 times from 160.7 to 876.7 min (cf Table 2). As can be observed from Table 2, trade turnover grew exponentially fast with China. It is also evi denced in the WTO's Trade Policy Review reports and confirmed in figures 3 and 4, that Kyrgyzstan managed to diversify its trading partners and increase its trading relations with WTO members (Cf fig. 3 and 4). It traded goods and services with most WTO members, thus benefiting from the new market access conditions offEred through WTO Membership. On the export side the main trading partners in 2017 included Switzerland (27.4 %), Kazakhstan (16.5 %), Russia (14.7 %), European Union (13.8 %), Uzbekistan (8.2 %), Turkey (7.4 %) and China (5.5 %). In terms of imports, the main trading partners were China (33.4 %), Russian Federation (26.4 %), Kazakhstan (13.1 %), the European Union (6.7 %), Turkey (5 %). This shows that Kyrgyzstan has a major trade deficit with China, the Russian Federation and the EU. These figures have remained relatively stable over time with some changes since 2006, confirming that the direction s in trade happened early on after the accession was completed.

The share of trade with the main trading partners of Kyrgyz Republic in the CIS, as well as within the economic space of the EAEU remained relatively steady with some exceptions. Trade with the Russian Federation increased 5 times from 287.8 to 1,456.6 mln US$, and with Kazakhstan 5.5 times from 160.7 to 876.7 min (Cf Table 2). As can be observed from Table 2, trade turnover grew exponentially fast with China. It is also evidenced in the WTO's Trade Policy Review reports and confirmed in figures 3 and 4, that Kyrgyzstan managed to diversify its trading partners and increase its trading relations with WTO members (cf fig. 3 and 4) Cf WT/TPR/S/288/Rev.1 p. 15 ch.t 1.2 direction of merchandise trade 2006 and 2012 . URL: https:// docsonline.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=121920,119696,82889,71996&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrench Record=True&HasSpanishRecord=True (accessed: 08.09.2019).. It traded goods and services with most WTO members, thus benefiting from the new market access conditions offered through WTO Membership. On the export side the main trading partners in 2017 included Switzerland (27.4 %), Kazakhstan (16.5 %), Russia (14.7 %), European Union (13.8 %), Uzbekistan (8.2 %), Turkey (7.4 %) and China (5.5 %). In terms of imports, the main trading partners were China (33.4 %), Russian Federation (26.4 %), Kazakhstan (13.1 %), the European Union (6.7 %), Turkey (5 %). This shows that Kyrgyzstan has a major trade deficit with China, the Russian Federation and the EU. These figures have remained relatively stable over time with some changes since 2006, confirming that the direction s in trade happened early on after the accession was completed.

Fig. 4. Dynamics and structure of imports of the Kyrgyz Republic with EAEU, CIS and WTO in 1998- Source: Ministry of Economy. URL: http://mineconom.gov.kg/en (accessed: 20.09.2019).

The share of exports to CIS countries reached a total of 2.1 bln US$ corresponding to less than 50 % of total exports, staying far behind in growth compared to third country markets. WTO accession thus implied a rapid diversification of trade and to the benefit of WTO members and a relative decrease of the share of CIS in Kyrgyzstan's trade.

Imports into the Kyrgyz Republic grew significantly due to low tariffs and MFN trade, offering good market access conditions to the Kyrgyz Republic. Among the sectors that showed the strongest increase in imports in the Kyrgyz Republic are: medicines, vehicles, machinery equipment, finished food products, metal products and textile fabrics.

The developments on Kyrgyz trade patterns thus show that there has been an exponential high growth in exports and imports since Kyrgyz Republic joined the WTO, but at the same time the Kyrgyz Republic has become more dependent on the import of foreign manufactures. It also has not been able to diversify the composition of exports and imports. One of several challenges will consist of integrating more fully into world trade by better linking to GVC and generating more value addition in the production process and upgrading production. Challenges encountered in that regard concern a lack of technological innovation, areas that have the attention of the authorities.

4. Regional Integration Challenges for Kyrgyzstan

While the main purpose of WTO membership was to promote multilateral trade liberalization and decrease its dependency on regional trading partners, interestingly Kyrgyzstan recently has made significant strides (re-)integrating regionally. This is much in line with the new trend of regionalism, covering basically all regions, including most of the key players and world traders [Acharya, Chauffour, Maur, 2011]. Central Asia is no exception with several regional integration initiatives under way.

From a WTO perspective, one of the concerns with RTAs is that the benefits of trade liberalization under RTAs are limited to those parties subscribing to the RTAs and so they are exclusive. Hence there is a potential conflict between the two approaches, thus necessitating policy choices. While regionalism is tolerated under the rules of the multilateral trading system of the WTO, RTAs deviate from the MFN principles, which ensure that all benefits accrue to the entire membership Article XXIV of the GATT (URL: https://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm article XXIV (accessed: 07.08.2019)) contains specific language detailing the conditions and criteria applying to regional integration initiatives, e.g. customs union, free trade arrangements, preferential schemes etc. These provided the legal basis for the European Union to establish its customs union in the 1950s and later to cover its preferential schemes with its overseas territories. It also became evident that the provisions of Article XXIV had some shortcomings, as the question whether the condition in the relevant provisions had been met could never be answered. This hampered the discussions and debates for many years, until im-provements in the provisions were finally adopted, enhancing the transparency principles on regionalism.. In accepting regionalism under WTO rules, a fundamental element is that the overall net balance of the regional integration initiative should be a positive one, with a net benefit for the world as a whole, an issue that economists refer to as trade creation versus trade diversion Regional integration can lead to trade creation by eliminating trade obstacles through tariff reduc-tion and/or elimination between the constituent parties as well as a reduction of non-tariff measures. It can also lead to trade diversion as the conditions provided to the parties of the regional entity are better than those provided to the non-parties, thus giving an economic advantage to the region. The difficulty consists of making the economic calculations between the trade creation and trade diversion effects and draw con-clusions on the over all effects.. In the case of a customs union or free trade area, members must remove duties and other restrictions affecting 'substantially all trade' among them One of the unresolved questions is what is meant by `substantially all trade' and how to measure it? How can the economic effects of the harmonisation technical regulations, standards, laws in the area of services and intellectual property rights, agricultural regulations be quantified?. Other rules require a detailed plan and schedule to show how the members will move to free trade, and these are examined to confirm that Article XXIV's requirements have been met. As the GATT provisions on regionalism became largely obsolete, the Marrakesh Agreement led to a new Understanding clarifying the procedures to be followed and/or touches upon most of the concerns that have come up and making it easier to reach agreement on whether regional agreements meet Article XXIV rules GATT 1994: Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994. URL: https://www.wto.org/english/docs_e/legal_e/10-24.pdf (accessed: 07.08.2019).. The

Agreement also contains provisions on the examination of regional trade agreements, and which are mostly procedural.

Kyrgyzstan is a member of various regional integration initiatives: in 2015, Kyrgyzstan Joined the EAEU, while in the same year, Kazakhstan completed the process of accession to the WTO Kyrgyzstan's main regional integration commitments include:

Commonwealth of Independent States (CIS) -- Established in December 1991, the participants include: the Republic of Azerbaijan, the Republic of Armenia, the Republic of Belarus, Georgia, the Republic of Ka-zakhstan, the Kyrgyz Republic, the Republic of Moldova, the Russian Federation, the Republic of Tajikistan, Turkmenistan, the Republic of Uzbekistan, Ukraine (before recent events). The basic document of coopera-tion among the CIS states was the “Agreement on the Establishment of a Free Trade Zone” of April 15, 1994 and currently is the “Agreement on the Free Trade Zone”, signed in St. Petersburg on October 18, 2011. Based on these agreements, the Kyrgyz Republic provides a free trade regime for all goods originating from the CIS countries, while maintaining its own external tariff.

Economic Cooperation Organization (ECO) -- Established in November 1992. The members are the Kyrgyz Republic, the Republic of Kazakhstan, the Republic of Uzbekistan, the Republic of Tajikistan, the Republic of Turkmenistan, the Republic of Azerbaijan and the Islamic Republic of Afghanistan. The main objectives of the organization are the acceleration of regional cooperation in the field of economy, science and technology; the development of communication infrastructure both among the ECO member states and with other countries.

CAREC Programme: The CAREC programme is in operation since 2001. It is a consultative forum initiated by the Asian Development Bank, covering the Republic of Azerbaijan, the PRC, Afghanistan, the Republic of Kazakhstan, the Kyrgyz Republic, the Republic of Uzbekistan, the Republic of Tajikistan and Mongolia. Basic principles -- “Good neighbours, good partners, good prospects” The main activities in 2010-2020 are the implementation of joint projects aimed to develop transport, trade, trade policy and electric power industry. CAREC activities until 2030 involves focusing on five operational clusters: (a) eco-nomic and financial stability; (b) trade, tourism, and economic corridors; (c) infrastructure and economic connectivity; (d) agriculture and water resources; (e) human development.

Eurasian Economic Union (EAEU): The predecessor of the EAEU is the CIS Customs Union, formed on January 6, 1995 by Russia and Belarus. Kazakhstan joined it on January 20, 1995, Kyrgyzstan joined on March 29, 1996, Tajikistan joined on February 26, 1999. On October 10, 2000, the Customs Union was transformed into EurAsEC, and Uzbekistan joined it on January 25, 2006. The formation of the Common Economic Space began on January 1, 2012. The process of transforming the CU into the EAEU was complet-ed by the beginning of 2014. From January 1, 2015, a new integration association, the Eurasian Economic Union (EAEU), began to function. Armenia and Kyrgyzstan joined in 2015. The includes free movement of goods, a common market for services, with a transitional period until 2025, a common labour market and the free movement of capital, with transitional period until 2025.

Kyrgyzstan is a member of several preferential trade agreements with CIS countries and signed FTAs with Russia on 8 October 1992, Kazakhstan on 22 June 1995, Uzbekistan on 24 December 1996, Azerbaijan on 12 January 2004, Armenia on 7 July 1994, Moldova on 26 May 1995, Ukraine on 26 May 1995, Belarus on 30 March 1999, Tajikistan on 19 January 2000.. These factors created new conditions in the foreign trade regimes of the EAEU with WTO member countries and affected tariff schedules and concessions made during the WTO accession. For many items, import duties for both Kyrgyz Republic and Kazakhstan were significantly lower than the Common Customs Tariff of the EAEU and needed to be raised to comply with the Common External Tariff (CET) of the EAEU.

Following the accession of the Kyrgyz Republic to the EAEU Treaty of May 29, 2014, consultations were held at the WTO on the new trade regime and the implications for WTO members. As provided for under the WTO rules, negotiations are carried out by Kyrgyzstan in the framework of Articles XXIV and XXVIII of GATT 1994 and in order to change the tariff concessions of the Kyrgyz Republic in the WTO. As was observed in Kyrgyzstan's TPR in 2014, the implication of Joining the Customs Union meant that the Kyrgyz Republic would have to raise its average rate of duty from 5 % to the CET of 10.5 % WT/TPR/S/288/Rev.1, p. 23. URL: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.as px?language=E&CatalogueIdList=120527,118699&CurrentCatalogueIdIndex=0&FullTextHash (accessed: 08.08.2019).. This is quite problematic and requires substantial renegotiation of tariff concessions. Referring to a study undertaken by the Eurasian Development Bank Eurasian Development Bank (2012); USAID/The services Group/AECOM (2010a) and (2010b)., it is noted that:

30 % of Kyrgyz duties align with those of the customs union, and thus would not need to be changed;

21 % can be re-aligned with those of the customs union without violating WTO commitments, but Nearly 50 % do not align and would require re-negotiations and compensation to WTO Members.

Interest in conducting negotiations with the Kyrgyz Republic was expressed by seven WTO member countries (hereinafter referred to as the Participants of the negotiations), which account for more than a third of world exports. The Government of the Kyrgyz Republic submitted the required notifications to the WTO on the entire spectrum of issues that are subject to changes in the foreign trade regime of the Kyrgyz Republic, following its accession to the EAEU. The main objective is to ensure that all measures taken at the level of the EAEU are brought in conformity with the WTO.

The question then is, looking at the evolution of its trade patterns from an economic perspective, with most significant trade growth occurring with WTO Members and not its regional trade partners, why Kyrgyzstan puts itself in a situation requiring a significant increase in its tariffs and the explicit obligation of renegotiating its commitments and providing compensation. The process risks to be long, cumbersome and very expensive for Kyrgyzstan and its trading partners. It is understood that not all compensation needs to be provided by Kyrgyzstan, as long as the overall balance of trade concessions can be maintained, but someone will have to pay the bill. Given that the renegotiations concern the EAEU Members in terms of compensation to be provided, the negotiation process is carried out in close coordination with the EAEU member countries in order to determine the levels of compensation. The process of renegotiating tariff concessions is likely to be long, complex and costly.

5. The Way Forward

In pursuing its key objectives and as a new and Recently Acceded Member (RAM) of the WTO, the main challenges for the Kyrgyz Republic consists of continuing the reform process initiated during and following its accession process The countries that are recognized as Recently Acceded Members (RAMs) are defined in the WTO negotiations and listed as such for the purpose of having a common understanding on which ones they are. Given their status as having recently acceded and having made considerable concessions in the process, special conditions are considered for them under the terms of the draft agreements under negotiation.. The domestic reform agenda is particularly challenging at a time of globalization and the need to be inserted in Global Value Chains [Smeets, Mashayekhi, 2019; Smeets, 2017]. Putting the right policies in place and having an economy that can be reactive and responsive to rapidly changing economic conditions is not an easy task. It includes a broad range of measures aimed at reducing transaction costs, easing business transactions, reviewing tax laws and regulations and enhancing transparency with a view attracting foreign direct investment (FDI). All measures are geared towards enhancing competition, encouraging and facilitating trade, easing customs procedures, lowering import duties and reducing the incidence of nontariff measures. The key challenge is to ensure that all benefit from the liberalization.

Given its transition from a centrally planned system to a market-based economy, a fundamental policy shift included reducing state control over strategically important sectors, which for many years generated government revenue as well as the control it could exercise over its operations in industries, such as mining, energy and many other key areas. Privatization was key to success. Other major challenges included the elimination of non-tariff measures, quantitative restrictions, adjusting its customs valuation methodology for the importation of goods and bring it in line with the customs valuation agreement, reviewing its licensing systems (automatic licensing), adopting standards and regulations in line with international technical and sanitary and phytosanitary standards, which can be complex, costly and difficult to implement. While many actions were taken in that sense, other policy options still need to be pursued for a further and deeper integration in the trading system.

The implementation of the WTO agreements is not only technically challenging, but requires further institutional and regulatory reforms, which can be complex and costly. Calculations made by the World Bank show that the implementation of the Customs Valuation Agreement, including the institutional reforms of the customs and its modernization can cost well beyond $100 min [Finger, Schuler, 1998]. Separately, membership required legislation for intellectual property rights, another major challenging area, eliminating trade related investment measures (TRIMS), which are in conflict with WTO etc. This again is to show that the reform process is still on in critical sectors of the economy.

5.1 The Trade Facilitation Agreement (TFA)

Bearing the above-mentioned objectives in mind, and after a careful examination of all aspects of the Trade Facilitation Agreement (TFA), the Kyrgyz Republic decided to fully support and ratify the Agreement, which happened on 6th December 2016. It is recalled that the TFA was negotiated at the MC-IX (Bali) WTO and adopted by the members on 27 November 20 1 4 Agreement on Trade Facilitation. 11 December 2013. WT/MIN (13)/36, WT/L/911. URL: https:// webcache.googleusercontent.com/search?q=cache:mMq_pDAwUW4J:https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx%3Ffilename%3Dq:/WT/MIN13/36.pdf+&cd=1&hl=en&ct=clnk&gl=kg&client=safari (accessed: 12.08.2019).. The TFA could only enter into force once two-thirds of members had completed their domestic ratification process. On 22nd February 2017, the required total of 111 members had ratified the agreement, thus freeing the way to its entering into force and implementation Cf WTO 2017 News item. 22 February 2017: WTO's Trade facilitation Agreement enters into force. URL: https://www.wto.org/english/news_e/news17_e/fac_31jan17_e.htm (accessed: 12.08.2019).. To date a total of 145 members have ratified TFA Data base of the WTO. URL: https://www.tfadatabase.org (accessed: 12.08.2019).. In ratifying the TFA, nearly two years after the TFA was negotiated, Kyrgyz Republic showed a strong political will and commitment to be bound by provisions of this Agreement. It is strongly motivated by the economic efficiency gains that can be derived from a full implementation of the TFA. The Ministry of Economy introduced the Single Window and initiated new, streamlined administrative customs procedures, aiming at an information system based on paperless trade. In undertaking these changes and improvements in customs procedures it benefited from substantial technical support provided by the World Customs Organization and the Asian Development Bank.

Indeed, there has been a large conversion of thought in the literature on the economic benefits that the implementation of the TFA can yield [WTO World Trade Report 2015...]. A recent study undertaken Jointly by the WTO and the World Bank underscores the role of reducing transaction costs in developing countries in support of trade [World Bank Group., 2015]. It observes that it is “a common finding in the literature that trade facilitation can improve export performance and that the potential gains are larger for developing countries that developed countries” World Bank Group and the World Trade Organization (2015). The Role of Trade in Ending Poverty. Joint publication. URL: https://www.wto.org/english/res_e/booksp_e/worldbankandwto15_e.pdf (accessed: 20.08.2019)... The WTO estimates that “the full implementation of TFA could reduce global trade costs by an average of 14.3 per cent” Cf WTO World Trade Report 2015. Ch. D, p. 73.. According to the Peterson Institute, “the implementation of the TFA could amount to over US$ 1 trillion in gains to the world GDP” [Hufbauer, Schott 2013]. There is wide recognition of the fact that while the implementation of the TFA will benefit all countries, it will mostly come to the benefit of developing countries, as both export and GDP growth will increase more than in developed countries. Beverelli calculates that “improved trade facilitation can lead to an increase in the number of products exported by destination of up to 16 per cent” [Beverelli, Neumuller, Teh, 2015]. Similar conclusions on the gains of the TFA are contained in a series of case studies presented by WTO Chairs, in which they analyze the cost and benefits of the implementation of the TFA for countries and regions and more specifically for Africa and Arab countries [Teh et al., 2016]. Calculations made by economists, international organizations and think tanks suggest that the trade costs in developing countries are on average the equivalent of 219 % import duties Ibid, Foreword by the Director General.. Hence the literature provides the supporting evidence Justifying the determination of the Kyrgyz Republic to upscale and modernize its customs procedures. The expected gains from the TFA for Kyrgyzstan have not yet been quantified, but merit further consideration.

5.2 Information Technology Agreement (ITA)

The Kyrgyz Republic became a Participant to the Information Technology Agreement (ITA). It is recalled that the first ITA was agreed by the WTO members during the first Ministerial Conference, MC-I (Singapore) As contained in the Ministerial Declaration on Trade in Information Technology Products. 13 De-cember 1996. URL: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&Catalo gueIdList=15259,1447,59473,31385,38875,31396,20233,3979,15215,38784&CurrentCatalogueIdIndex=8& FullTextHash (accessed: 23.08.2019).. The ITA includes 82 WTO members, who collectively account for 97 % of world trade in IT goods Data as of August 2019.. It is a typical example of a sectorial initiative aimed at liberalizing trade in a specific area and providing new market access opportunities. It is noteworthy that the ITA members inscribe the tariff concessions, that is, elimination of duties in their tariff schedules, which de facto implements the ITA on a MFN basis. In other words, all the benefits of the ITA are automatically extended to the entire WTO membership by virtue of the MFN principle. Ministers endorsed the results of the negotiations at MC-X (Nairobi) and in accordance with the Ministerial Declaration, the first set of tariff cuts were implemented in July 2016, with a second tranche of cuts to be implemented in 2017 Cf Ministerial Declaration on the Expansion of Trade in Information Technology products. 16 De-cember 2015. MC-X (Nairobi).. As a member to the ITA the Kyrgyz Republic should make efforts to take full advantage that the membership offers.

5.3 Government Procurement

The Kyrgyz Republic has been an observer to the Government Procurement Agreement (GPA) for the past 20 years and continues assessing the prospects of Joining the agreement. In Joining the GPA, the Kyrgyz Republic has the prospect of stimulating more domestic competition in the process of procuring goods and services, allowing government entities to be listed under the terms of the GPA to purchase these goods and services at competitive market prices, thus generating public cost-savings. According to various studies, the government procurement market represents 15-20 % of the world economy and it is an increasingly strategic focus for governments [Anderson, Arrowsmith, 2011; The WTO at Twenty..., 2015]. The GPA was revised recently and it is estimated that the parties to the revised GPA will see gains in market access of some US$ 80 bln to US$ 100 bln annually for their businesses As contained in WTO News items of 7 April 2014. URL: https://www.wto.org/english/news_e/news14_e/gpro_07apr14_e.htm (accessed: 23.08. 2019).. These gains in market access are expected to be obtained as a result of adding a large number of government entities (ministries and agencies) to the scope of the GPA and from new services and other areas of public procurement activities being included in its expanded coverage.

It is believed that inter alia, GPA membership will reduce the risk of corruption, often associated with government procurement. Accession to the GPA will imply a change in current procedures, ensure transparency and a transition to international standards. The market of Kyrgyz government purchases is relatively small with an estimated value of around 300-500 million US dollars. The threshold for tendering under the GPA is between 130-400 US dollars depending on the purchase and for construction works it is 5 million US dollars. Thus, Kyrgyzstan, when Joining the GPA is expected to save on the large contracts and likely to retain a leverage for the lion share of the purchases which remain below the threshold. Given that two of Kyrgyz main partners, Russia and Kazakhstan, are actively engaged in negotiations on their accession to the GPA, and Armenia has been a member of the GPA since 2015, the Kyrgyz Republic cannot stay behind. The EBRD is supporting Kyrgyzstan's negotiation process through the legal and technical assistance to the negotiation team. The current status of the negotiations was signalled at the GPA committee in 2018 with most bilateral negotiation with other GPA members completed.

5.4 Promoting Services Trade in Support of Kyrgyzstan's Economic Development

As part of the Kyrgyz Republic's National Sustainable Development Strategy pursued between 2013-2017, the government decided to accord specific attention to promoting the export of services, which in 2012 represented a share of 46.6 % of GDP, compared to only 40 % in 2006 WT/TPR/G/288, p. 5. URL: https://www.wto.org/english/tratop_e/tpr_e/g288_e.pdf (accessed: 30.08.2019).. This is well below the average with most developed countries having a share of 60-65 % of GDP and shows that there is a significant potential to develop [Mash- ayekhi, Antunes, 2017] and further carefully liberalize the services sectors in the Kyrgyz Republic. It also means that the potential has largely remained untapped, since Kyrgyzstan had made a total number of services commitments in 135 (sub)sectors and which is the third highest number of commitments to date As was observed earlier, most if not all Article XII members have taken higher levels of commitments than other WTO members..

Services trade offers a great development perspective and a valuable alternative and/ or complement to the industrial development [Mashayekhi, 2000]. “The key concern for developing countries is not only whether the flow of trade is maximized but also development aspects of such trade, including its contribution to building a competitive services sector and maximization of overall level of development”. She then explains that “it is now widely recognized that carefully designed and prepared liberalization can contribute to improve the economic performance of developing countries through their integration in the world economy. This improved performance is, among other things, the result of increased competition and opportunities for developing countries exports and accompanying transfer of skills, information and technology. However, for a broader development, social and equity objectives to be achieved in developing countries, it is important that trade liberalization is coordinated with policies to promote domestic supply capacity and related regulatory and institutional reform” [Mashayekhi, Olarreaga, Pinto, 2011].

In accordance with the commitments made in services, the Kyrgyz Republic grants MFN treatment for most services activities to WTO Members, except where it has made exemptions to MFN in accordance with GATS and as inscribed in the commitments. At the same time, it benefits from MFN treatment abroad, thus allowing its services exports to grow. Since its accession to the WTO, Kyrgyzstan has made significant strides opening its market for important service operators in critical sectors of the economy, including banking, insurance, telecommunications etc. By way of illustration, at the time of its accession, there were significant restrictions for foreign banks operations in the Kyrgyz Republic, which were lifted in 2002. The same applies to insurance services, which included significant restrictions on the participation of foreign insurance companies until 2002.

The most important services sectors of Kyrgyzstan are wholesale and retail trade services, transportation, tourism and business services [Mashayekhi, 2000] WT/TPR/G/288, p. 8. URL: https://www.wto.org/english/tratop_e/tpr_e/g288_e.pdf (accessed: 24.08.2019).. Other types of services have a small share (from 0.1 % to 8 %). The share of tourism services has tended to grow both in total exports and imports over the period 2006-2012. Meanwhile, the share of transportation services has gone down over the same period. Kyrgyzstan being a landlocked country and at cross-roads between East and West including some major trading nations, much depends on a good infra-structure, including road and air transportation. This means that more efforts will need to be undertaken in this sector and for which the implementation of the TFA will be of critical importance. Also, most (i.e. over 50 %) of its services trade takes place within CIS countries, testifying of the economic significance of this region for services trade. This stands in contrast with goods trade, with the main trading partners being other than CIS countries. Here again there is scope for diversification.

In the long-term, the expectation is that the services sector will have the largest impact among the real sectors of economy, which form the GDP. This sector will develop faster in comparison with other economy sectors of the country. Hence the priority that is accorded to services trade and implementing legislation that is likely to be conducive to attract more FDI in such sectors as banking, telecommunications, postal services, transport, tourism etc.

To attract more FDI in the services sectors, the Kyrgyz Republic is committed to pursuing its liberalization efforts for postal, tele-communication services, air transport services, lawyer services and energy distribution. Also, given the rapidly splitting up of production processes and rising trade in parts and components, as well as growing interaction between goods and services, with a steadily rising share of services incorporated in goods, the Kyrgyz Republic would stand to gain from a fuller participation in the global value chains. Given the limitations of its small domestic market for production and consumption, being part of the EAEU offers new opportunities to generate economies of scale for goods and services.

5.5 Technical Barriers to Trade and Sanitary and Phyto Sanitary Measures (TBT and SPS)

Technical regulations, standards and sanitary and phyto-sanitary regulations are areas that are of significant interest to Kyrgyz Republic given the potential for further developing and expanding trade and meeting the relevant standards and SPS conditions in the export markets. It is also recognized that in doing so, a deepening of the expertise of Kyrgyz officials is required. The reality however is that the technical requirements are subject to frequent change and the Kyrgyz Republic does not have an inquiry point for SPS measures. During the Trade Policy Review conducted for Kyrgyz Republic in 2014, WTO Members observed that further efforts were required on the side of the Kyrgyz Republic to ensure that its regulatory system would be implemented according to WTO obligations in the SPS Agreement, which calls on WTO Members to base their regulations on international standards and science WT/TPR/S/328 para 20. URL: https://docsonline.wto.org/dol2fe/Pages/FE_Search/FE_S_S009- DPaspx?language=E&CatalogueIdList=227590,135736,66726,105138&CurrentCatalogueIdIndex=1&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True (accessed: 04.09.2019)..

It requires establishing enquiry points, which allow foreign operators to get information on those very same standards and regulations introduced. The structural adjustments required thus go far beyond the introduction of new laws and regulations, but it involves the setting up of physical and technical infra-structures, requiring considerably investment in equipment and technologies, as well as in training and skill development for the operators of the standard bodies. It requires staff and training, which takes both time and money. According to Finger and Schuler the implementation of the agreements relating to TBT, SPS and intellectual property can cost over $130 min [Finger, Schuler, 1998]. This is an area where the Kyrgyz Republic continues to face challenges.

5.6 Promoting Foreign Direct Investment

The Kyrgyz Republic attracts relatively little FDI, which led the government to take various economic reforms with a view to ensuring a strong legal system to protect investor rights and apply the national treatment to all investors. The government of Kyrgyz Republic has made it a priority to further improve the investment climate and strengthening investor confidence to attract foreign direct investment and boost economic growth. As is observed in the TPR WT/TPR/G 288, p. 9. URL: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web& cd=2&ved=2ahUKEwjXmKrCyv_lAhXFhqQKHdsBDYgQFjABegQIARAB&url=https%3A%2F%2Fdo cs.wto.org%2Fdol2fe%2FPages%2FFE_Search%2FDDFDocuments%2F119697%2Fq%2FWT%2FTPR%2 FG288.pdf&usg=AOvVaw3y9ZC6VqyOmqIoyuJLrJ53 (accessed: 04.09.2019)., the overall investment trends demonstrate an uneven inflow of foreign investments to Kyrgyzstan. Foreign investments for the years 2006-12 have increased by 1.7 times, with 12.1 % average annual growth rate (from USD2,514.4 to 4,335.8 min). The inflow of Foreign Direct Investments has uneven trends, which were within the range of 9-17 % of the GDP. The value of this index is below the threshold value of indicator of FDI sufficiency that makes 25 % of GDP according to international practice. FDI inflow over the last years has been mostly from non-CIS countries and mainly from Canada and China, accounting for nearly 34 % of all FDI. To this should be added nearly 19 % of FDI originating from the EU. The CIS share in FDI is less than 29 %, of which Kazakhstan alone takes a share of 22.5 %. Canada mainly invests in the mining industry, and China in both large-scale investments projects and in small and medium sized enterprises. The processing industry, which accounts for the largest part of Foreign Direct Investments, continues to be the most attractive sector for foreign investors in Kyrgyzstan. This again points to the importance of one segment in the economy that is predominant and generates government revenue, but accounts for a small share of employment and doesn't generate much value addition. Policies should thus be geared towards other sectors that would ease inclusive growth, including in services and other value adding process.

5.7 Enhancing Transparency through Notifications

Data contained in the WTO Secretariat reports on notifications G/L/223/Rev.26. URL: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&

cad=rja&uact=8&ved=2ahUKEwjEzZSEzlAhXlo4sKHSH3CiEQFjAAegQIBhAC&url=https%3A%2F%

2Fdocs.wto.org%2Fdol2fe%2FPages%2FSS%2Fdirectdoc.aspx%3Ffilename%3Dq%3A%2FG%2FL%2F22 3R26.pdf&usg=AOvVaw2wYb6UID_T12NK3YjU0T3q (accessed: 07.09.2019). that are circulated to Members and the relevant tables contained in the documents on Members' notifications in specific fields show that the Kyrgyz Republic stays behind in meeting its notification obligations. While this is a tedious and elaborate job, it is nevertheless essential in enhancing transparency in policy making. To assist WTO Members and facilitate the process of making notifications, the WTO Secretariat has prepared a handbook on notifications, accessible to all Members. It offers training programs on notifications and under the internship programs offered by the WTO and of which Kyrgyz Republic had benefited, the secretariat offers direct support to beneficiaries in discharging their notification requirements. Hence, this is an area where more efforts should be pursued.

On the positive side, and regarding agriculture, the Kyrgyz Republic has notified that it provided no export subsidies to agricultural products. This is in line with its accession commitments, where it agreed not to apply export subsidies. It is recalled that at MC-X (Nairobi) a decision was taken to fully eliminate and prohibit export subsidies by developed countries with immediate effect, followed by the elimination of export subsidies by developing countries by the end of 2018 Ministerial Declaration WT/MIN(15)45-WT/L/980, para.7. URL: https://www.google.com/urPsa =t&rct=j&q=&esrc=s&source=web&cd=1&ved=2ahUKEwjps-ip0v_lAhXr-SoKHZseA4QQFjAAegQIBh AC&url=https%3A%2F%2Fdocs.wto.org%2Fdol2fe%2FPages%2FSS%2Fdirectdoc.aspx%3Ffilename%3D q%3A%2FWT%2FMIN15%2F45.pdf&usg=AOvVaw2AbZL-hGMJzy9r4K_6HsRN (accessed: 09.09.2019)..

5.8 The Role of Institutional and Human Trade Capacity Building

Given the highly complex nature of the WTO agreements and the technical expertise required to understand and implement the agreements, trade capacity building was an essential component in the reform process. This was one of the conclusions of the two Ministerial meetings that the then Director-General organized for the CIS and the Balkan countries: the efforts undertaken by countries in these two regions were significant precisely because of the scale of reforms required to conform to the WTO's market-based principles [Smeets, 2013]. The human and institutional capacity required was provided by the WTO Secretariat, bilateral donors and other international organizations, including USAID, SECO, EBRD, UNDP, World Bank and CTPL [Smeets, 2013].

Officials from the Kyrgyz Republic have been associated with over 600 TA activities since they Joined the WTO. The activities included training courses, general and specialized technical seminars and courses to enhance their knowledge, awareness and understanding of the agreements and obligations. In addition, a WTO reference centre was established in support of the government, academic and business society. Many training events took place in-country (Bishkek) for government officials, including general and specialized WTO training sessions.

The Kyrgyz Republic has also benefited from the WTO's internship programs, including a dozen officials that have been trained under the Netherlands Trainee Program and the French Irish Mission Internship Program. In Fall 2018, an academic event was held in the Kyrgyz Republic, with lectures and seminars offered by the authors to students at various universities. Discussions were also held with professors and academics on research to be undertaken on the WTO and more specifically on trade related issues of particularly interest to the Kyrgyz Republic and with a view of assisting policymakers in their policy decisions. The rationale is to more closely involve the academia in policy making decisions. This is an area that can be strengthened further.

Conclusions

This paper started with the hypothesis that policy reforms are a necessary condition for a country's fuller integration into the WTO multilateral trading system and achieving economic benefits. The paper evidences that the policy directions chosen by the government of Kyrgyz Republic since its accession to the WTO twenty years ago are clear: in addition to the fundamental economic and policy reforms, significant liberalization in goods and services, very low tariffs and a significant number of services commitments, there is strong commitment to reforms and abiding by the rules of the WTO multilateral trading system. It was argued that Kyrgyzstan's policies are geared towards applying market based principles, creating and enhancing a competitive trading environment, reducing obstacles to trade, applying international standards, simplifying and streamlining customs procedures, taking advantage of the potential benefits generated by the application of the TFA, promoting FDI, innovation and transfer of technology, diversifying production and exports, generating more value added, being more closely linked to GVCs and developing and strengthening further the services economy, including in the tourism sector. This is full agenda and shows that reforms are part of an on-going process.

It was demonstrated that during its twenty years of WTO membership, the Kyrgyz Republic has conducted major structural reforms in order to achieve its key objectives, i.e. the integration into the world economy, including the implementation of WTO membership obligations. It has diversified its trade relations with a broader range of WTO Members, while at the same time deepening its relations with countries in the region, by Joining regional integration initiatives, including the customs union of the EAEU. It was also shown that many of its objectives continue to be work in progress. Some of the objectives can be achieved through internal, i.e. domestic efforts, such as abiding by the rules, liberalization and enhancing transparency, others depend on outside factors, some of which are beyond its control. The Kyrgyz Republic is an active Member in the WTO, committed to making substantive inputs in the deliberations and negotiations in pursuit of its economic and trade interests.

In conclusion, this paper evidences once again that domestic reforms are a sine qua non for generating economic growth. It requires a strong political commitment, determination, a longer-term vision, strategy, a clear understanding of the country's economic potential and the political will to implement the reforms. Even then when all ingredients are in place, a full integration into the multilateral trading system remains a challenge.

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