MEMORANDUM FOR: Faryar Shirzad Assistant Secretary for Import Administration THROUGH: Jeffrey May Director Office of Policy Import Administration Albert Hsu Senior Economist Office of Policy Import Administration FROM: George Smolik Economist Office of Policy Import Administration DATE: March 25, 2002 SUBJECT: Antidumping Duty Investigation of Silicomanganese from Kazakhstan - Request for Market Economy Status SUMMARY In connection with the above-captioned investigation, the sole Kazakhstan respondent, Transnational Company Kazchrome ("Kazchrome"), and the Government of Kazakhstan ("GOK") submitted requests to graduate Kazakhstan to market-economy status. Our analysis indicates that Kazakhstan has successfully made the transition to a market economy. As a result of economic and institutional reforms undertaken since the breakup of the Soviet Union in 1991, Kazakhstan's currency is now fully convertible for current account purposes. Wage reforms are well advanced in Kazakhstan, with workers able to unionize and negotiate wages and benefits on an individual and collective basis. Kazakhstan is open to foreign investment, and investors have responded, particularly into the oil, gas, and metals sectors. The GOK has privatized most sectors of the economy, although a number of large companies remain in majority state ownership. The allocation of resource decisions in Kazakhstan now rests with the private sector, with the GOK largely limiting price regulation to natural monopolies. In addition, the commercial banking sector behaves as a financial intermediary. Despite Kazakhstan's successful reforms, some problems remain. Foremost among these is that privatization efforts in Kazakhstan's remaining state- owned enterprises ("SOEs") have slowed markedly since 1997, in part because of GOK concerns about possible social unrest if it acts too quickly in forcing those SOEs that are insolvent into bankruptcy. In addition, wage arrears are a direct result of the slowdown in privatization efforts, and until recently, they were largely responsible for dragging down living standards. Overall, the changes in the Kazakhstan economy demonstrate that Kazakstan has completed the transition to a market economy. Based on these economic changes in Kazakhstan, as analyzed under section 771(18)(B) of the Tariff Act of 1930, as amended (the Act), we recommend that the U.S. Department of Commerce ("the Department") finds that Kazakhstan has operated as a market-economy country as of October 1, 2001, and that this finding be effective for all current and future administrative proceedings. BACKGROUND On April 6, 2001, the Department published a notice of initiation of an antidumping investigation on silicomanganese from Kazakhstan. On June 28, 2001, the Department received a request from the sole Kazakhstan respondent, Transnational Company Kazchrome ("Kazchrome"), requesting that the Department revoke the nonmarket economy ("NME") country-status of Kazakhstan under section 771(18)(A) of the Act. On July 5, 2001, the GOK also submitted a letter requesting that Kazakhstan's NME status be revoked in the context of this proceeding. The GOK and Kazchrome presented arguments that market-oriented reforms in Kazakhstan justify graduation to market economy status. Reforms that were cited include: a freely convertible, and now more stable, currency; legal guarantees to workers of the rights to organize in trade unions and collectively bargain as well as the reality of rising wage rates and declining unemployment; price and interest rate liberalization; substantial privatization of small- and medium-scale enterprises and of many of the largest enterprises; the elimination of trade distortions such as quantitative restrictions and pronounced integration into the international trading and investment systems; and the introduction of new laws, including a tax code based on international standards, an effective bankruptcy law, laws on competition and the securities market, and other components of the essential legal framework for a market economy. On July 30, 2001, August 23, 2001, and August 29, 2001, the petitioners',(1) responded to Kazakhstan's request for market economy status. The petitioners(2) argued that there is extensive government ownership and control of the means of production a. , and that the state is the sole or majority owner of a very large number of large and medium- sized enterprises. Petitioners also contended that the state is exercising control over the means of production through large stakes in privatized enterprises and by other means, and that privatization has slowed. Further, they argued that there is extensive government control over price and output decisions and the allocation of resources. Petitioners added that the government controls prices of many key commodities and prices are held below cost-recovery levels; companies are allowed to continue operating without paying suppliers and workers; and, state support of enterprises and industries distort prices, output decisions, and resource allocation. The argument was also made that the government is still heavily involved in financing business activities, and that more reform is required to dismantle the still dominant public sector in Kazakhstan. Petitioners further contended that there is extensive government interference with foreign investment and joint ventures, and that the GOK uses a variety of means to interfere with foreign investors and joint ventures. They argued that the investment process is not transparent and open; that there have been many instances of foreign investment failures due to arbitrary GOK action; that the government is granting preferences to domestic investors and tightening restrictions on foreign investors; and, that wage rates are not determined by free bargaining between labor and management. In issuing the preliminary determination in the silicomanganese investigation, the Department invited public comment on Kazakhstan's NME status. Comments were due December 10, 2001. Among the comments received by the Department were several from various U.S. businesses operating in Kazakhstan. Comments from Chevron Texaco Corporation, DHL International, Exxon Mobil Corporation, the International Tax and Investment Center, AES Corporation, the law firm of LeBoeuf, Lamb, Greene & MacRae, as well as from Motorola all supported Kazakhstan's market economy request based on their actual favorable business experience operating in Kazakhstan. The American Chamber of Commerce in Kazakhstan and the United States Chamber of Commerce also submitted comments in favor of NME revocation based on their members' collective experience operating in Kazakhstan. A single Kazakhstan producer, the Ust-Kamenogorsk Titanium and Magnesium Plant, submitted general comments supporting Kazakhstan's market economy request. The GOK submitted additional information to support its original request for market economy status, providing a list of recent developments that have taken place in the economic life of Kazakhstan. The Department also received a cable from the U.S. embassy in Kazakhstan stating that Kazakhstan's currency is fully convertible; the GOK does not interfere with free bargaining between labor and management; the GOK is very liberal in allowing foreign investment and joint ventures in Kazakhstan; private companies produce most of the Gross Domestic Product ("GDP") and dominate almost all economic sectors in Kazakhstan; and, the GOK has been working to build private markets across all sectors. Comments against revocation of Kazakhstan's NME status were submitted by several U.S. steel producers: Bethlehem Steel Corporation, LTV Steel Company, Inc., National Steel Corp., and United States Steel LLC ("Steel Group"). The comments in opposition discussed the following issues in Kazakhstan: • Congress did not intend to limit NME status to countries in which only the central government exercises pervasive control. • Barter is prevalent, and capital flight is widespread. • Kazakhstan's legal foundation for labor relations is weak, and unions are ineffective. • Kazakhstan's failure to uniformly enforce laws deters foreign direct investment ("FDI"). • Only a small percentage of Kazakstan's major enterprises are privatized, and privatization efforts are not moving forward. • Kazakhstan continues to directly control prices through price controls. • Other factors cited included widespread bribery and corruption. In its preliminary determination, the Department also invited rebuttal comments on Kazakhstan's market economy request, which were due on January 24, 2002. Rebuttal comments were made on behalf of petitioners and respondents in the investigation, and by the Steel Group. ANALYTICAL APPROACH In making a NME-country determination under section 771(18)(A) of the Act, Section 771(18)(B) requires that the Department take into account the following six factors. 1. The extent to which the currency of the foreign country is convertible into the currency of other countries. 2. The extent to which wage rates in the foreign country are determined by free bargaining between labor and management. 3. The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country. 4. The extent of government ownership or control of the means of production. 5. The extent of government control over the allocation of resources and over the price and output decisions of enterprises. 6. Such other factors as the administering authority considers appropriate. These factors have a common focus which is to ensure that market forces in the country are developed sufficiently to rely on a country's prices and costs in the Department's antidumping process. Prices and costs are central to the Department's dumping analysis and calculation of fair value. Prices and costs that the Department uses must therefore be meaningful measures of value. However, NME prices and costs are not, as a general rule, meaningful measures of value because they do not sufficiently reflect demand conditions or the relative scarcity of resources used in production. The problem with NMEs is not one of distorted prices, per se, since few, if any, market economy prices are perfect measures of value, free of all distortions (e.g., taxes, subsidies, other government regulatory measures). The problem, instead, is the price formation process in NMEs (i.e., the absence of the demand and supply elements that individually and collectively make a market-based price system work and make the resulting prices reliable). In evaluating the six factors listed above, the Department recognizes that it is not sufficient that a country's economy is no longer controlled by the state. Rather, the Department must determine whether the facts applied to the factors as a whole demonstrate that the economy is operating under market principles. This test, however, does not require that countries be judged against a theoretical model or a perfectly competitive laissez-faire economy. Instead, the Department must evaluate the totality of facts in determining whether a country has met the standard of a market economy. The Department's determination is based on comparing economic reforms in the country to how other market economies operate, recognizing that market economies around the world have many different forms and features. Although it is not necessary that the country fully meet every factor relative to other market economies, the Department must determine that economic reforms have reached a threshold level such that the country can be considered to have a functioning market economy in which prices and costs exist that can be tied to the U.S. antidumping law. OVERVIEW OF ECONOMIC REFORMS Historically, Kazakhstan was rarely united as a single nation or economic group, consisting mainly of disparate ethnic groups and nomadic tribes.(3) In the 18th century, Russia conquered Kazakhstan, which became a Soviet Republic in 1936.(4) For the ensuing 55 years, Soviet economic planners implemented a command system found throughout the Soviet Union, meaning they collectivized agricultural land and nationalized urban land and business enterprises. The Soviet ruble became Kazakhstan's currency, and economic activity in Kazakhstan was dictated by Soviet five-year plans drawn up in Moscow. Industrial production in Kazakhstan, as in other republics, was highly specialized. Kazakhstan's narrow economic base consisted primarily of agriculture, oil and gas production, metallurgy, and metalworking. Among Kazakhstan's designated products for the general all-union market were phosphate fertilizer, rolled metal, radio cables, aircraft wires, train bearings, tractors, and bulldozers.(5) Kazakhstan also had a well developed network of factories producing military goods that supplied about 11 percent of the total military production of the Soviet Union.(6) In some areas of military production, Kazakhstan had a virtual monopoly. As a result of Soviet economic planning priorities, Kazakhstan's service sector was poorly developed. The breakup of the USSR and the collapse of demand for Kazakhstan's traditional heavy industry products resulted in a short-term contraction of the economy, with the steepest annual decline occurring in 1994. The Kazakhstan economy contracted by 44 percent between 1990 and 1994, particularly after the ruble zone collapsed and the GOK was forced to implement policies to combat hyper-inflation.(7) From 1995-97, Kazakhstan's president since independence, Nursultan Nazarbayev, undertook comprehensive and systematic reforms designed to radically transform Kazakhstan into a market economy. The pace of the government program of economic reform and privatization quickened, resulting in a substantial shifting of assets into the private sector. Today, services is the largest sector in Kazakhstan's economy; however it largely supports the oil sector. For example, one of the largest ongoing construction services project in Kazakhstan is an oil pipeline, while a significant amount of commercial bank lending is for oil sector projects.(8) Kazakhstan's economic growth is largely fueled by the export oriented oil and metals sectors.(9) Other industrial production includes a growing light industry sector. While many sectors of the economy have grown, agricultural production has declined since the early 1990s when it was the second largest sector in the economy, contributing over a third of GDP and 18 percent of the workforce. In 1999, it accounted for only 10 percent of GDP.(10) The following section discusses each of the six statutory factors for determining NME-country status and the current state of Kazakhstan's economy as it relates to each of those factors. ANALYSIS OF SECTION 771(18)(B) FACTORS The extent to which the currency of the foreign country is convertible into the currency of other countries. A particular country's integration into world markets is highly dependent upon the convertability of its currency. The greater the extent of currency convertibility, for both trade and investment purposes, the greater are the supply and demand forces linking domestic market prices in the NME country to world market prices. The greater this linkage, the more market-based domestic prices tend to be. Legal framework Since the breakup of the Soviet Union, Kazakhstan has put in place a legal framework that ensures the full convertability of its currency. In 1995, the GOK implemented the Law of the Republic of Kazakhstan on the National Bank of the Republic of Kazakhstan, which separates the functions and obligations of the state from the National Bank of Kazakhstan ("NBK") regarding monetary policy, including currency regulation and management of the money supply. A year later, Kazakhstan adopted Article 8 of the IMF Articles of Agreement, which required the tenge to be fully convertible on the current account.(11) In the same year, the GOK implemented Article 10 of the Law on Currency Regulation, permitting commercial banks in Kazakhstan to freely exchange, buy, and sell foreign currency both in Kazakhstan and abroad, with the appropriate licenses from the NBK (virtually all banks possess such licenses).(12) In 2001, the Rules for Conducting Currency Transactions set procedures for currency transactions by and/or domestic and foreign entities via Kazakhstan banks and for the export and import of currency. Developments in the Economy Kazakhstan's implementation of its laws governing currency has been effective, as discussed below. Following the dissolution of the Soviet Union in 1991, Kazakhstan continued to use the Soviet ruble. In order to establish Kazakhstan's own monetary and exchange rate policies, the GOK phased out the ruble in 1993, introducing the tenge. For the next several years, the fledgling tenge remained pegged to the ruble, and could not be freely exchanged for another currency or for gold.(13) Since 1996, Kazakhstan has abided by the provisions contained in Article 8 of the IMF Articles of Agreement, and the tenge has remained fully convertible for current account purposes.(14) The NBK still has controls on some capital account transactions, such as requiring NBK approval prior to importing or exporting currency amounts over $100,000. However, these types of capital account controls are common in many countries. At the beginning of 1999, the NBK abolished its peg to the ruble and shifted to a floating exchange rate regime.(15) Today, the NBK establishes official exchange rates on the basis of rates in the FOREX market, and interbank markets, and exchange rates remain market based in accordance with supply and demand. Since adopting a market driven exchange rate, the NBK's only significant influence on the value of the currency has been to control inflation by limiting nominal appreciation of the tenge and controlling foreign exchange rate fluctuations.(16) For example, when increases in dollar- denominated oil revenues led to upward pressure on the tenge exchange rate, the NBK's foreign exchange intervention was limited to moderating the rate of change and preventing undue fluctuations in the exchange rate.(17) In addition, after oil price increases in 2000 caused a surge in the currency supply, the NBK reaction was limited to dampening inflationary pressures by issuing short-term NBK notes to absorb the excess liquidity.(18) The result has been that although the tenge has remained relatively stable in nominal terms vis-a-vis the US dollar, it has remained market-based.(19) Assessment of factor Overall, Kazakhstan's currency regime is essentially liberalized, as evidenced by a fully convertible currency (the tenge) for current account purposes, as well as a market-based exchange rate regime. We believe that Kazakhstan has made significant progress under this factor. The extent to which wage rates in the foreign country are determined by free bargaining between labor and management. This factor focuses on the manner in which wages are set because they are an important component of producers' costs and prices, and in turn are an important indicator of a country's overall approach to setting costs and prices in the economy. The reference to "free bargaining between labor and management" reflects concerns about the extent to which wages are market- based, i.e., about the existence of a market for labor in which mobile labor service providers and employers are free to bargain over the terms and conditions of employment. Legal framework Kazakhstan does not have laws which prescribe that the GOK administer wages in the economy, except in SOEs and in the establishment of a minimum wage. Moreover, Kazakhstan has in place a series of laws regarding labor that collectively provide a framework for free bargaining between labor and management. Labor reform since 1991 has included extensive legislative action, including the 1992 Law on Collective Bargaining Agreements, which provides for free bargaining between parties to reach a collective agreement. In 1993, the GOK adopted Article 17 of the Law on Professional Labor Unions, which gives unions the right to develop social and economic protection plans to protect their members. The law permits unions to establish programs to combat unemployment, to determine minimum wages, pensions, stipends and welfare benefits.(20) The GOK subsequently adopted the Law on Labor Disputes and Strikes in 1996, which allows strikers to demand and receive wage increases. The most significant labor reform legislation implemented in Kazakhstan to date is the 1999 Law on Labor.(21) The law replaces collective agreements previously negotiated by unions with separate employment contracts negotiated between individual employees and employers. However, employees or employers who wish to have collective agreements may still bargain for such agreements. In collective bargaining, both trade unions and other organizations established by non-union members may represent the employees' side. The law stipulates that a collective agreement is valid only for those on whose behalf it was signed. The Law on Labor also states that wages may not be lower than the minimum monthly wage established by the GOK.(22) Developments in the Economy Today, workers in Kazakhstan largely negotiate their own wages, and market forces establish wage rates. Moreover, the labor force is mobile and free to pursue new employment opportunities, as evidenced by the rapid expansion of certain sectors (e.g., oil), and the contraction of others (e.g., agriculture). The success of wage reforms in Kazakhstan has been attenuated by a longstanding problem with wage arrears. Wage arrears in Kazakhstan can be attributed largely to a slowdown in privatization reforms in certain sectors. The GOK has been reluctant to allow insolvent firms - mainly SOEs - to enter bankruptcy, instead enabling them to continue operating without promptly paying their creditors or workers.(23) Largely as a result of delayed industrial restructuring in Kazakhstan, companies that are effectively bankrupt have been able to amass wage arrears that erode living standards.(24) Although wage arrears remain a problem in Kazakhstan, there have been recent and dramatic improvements, partly due to a strong economy that led to rising output, and also due to a looser monetary policy. The reduction in wage arrears can also be attributed to a mobile workforce, insofar as workers are free to leave insolvent firms for more remunerative opportunities. The level of reported wage arrears was halved between 1999 and 2000, and continued to decline in 2001.(25) The stock of all wage arrears declined from 1.3 percent of GDP in June 1999 to 0.4 percent of GDP in February 2001.(26) In addition to contributing to lower wage arrears, the generally buoyant economy in Kazakhstan lowered the official rate of unemployment by over 11 percent between July 2001 and the year before. Although the actual rate of unemployment remains high at 10 percent, the trend is downward. As the growing pool of workers who are paid on time increases, the national standard of living has begun to increase significantly.(27) Between the first quarters of 2000 and 2001, average monthly real wages increased by 16.3 percent.(28) Assessment of factor Wage reforms are well advanced in Kazakhstan, with workers able to unionize and negotiate wages and benefits on an individual and collective basis. Since 1999, real wages have been increasing rapidly, while unemployment and wage arrears have declined. Overall, the progress made by Kazakhstan under this factor supports market forces in the country. The extent to which joint ventures or other investments by firms of other foreign countries are permitted in the foreign country. Opening an economy to foreign investment tends to expose domestic industry to competition from market-based suppliers and the management, production and sales practices that they bring. It also tends to limit the scope and extent of government control over the market, since foreign investors, as a general rule, demand a certain degree of autonomous control over their investments. Legal framework In 1994, the GOK implemented the Law on Foreign Investment, which provides guarantees for stability in the legal regime, non-expropriation, freedom to utilize profits made in Kazakhstan, and currency convertibility. The law also provides for access to international arbitration and protection against unlawful acts of government agencies and officials. Foreign and private domestic entities have the same right to establish and own business enterprises in Kazakhstan, and to engage in all forms of remunerative activity.(29) Private individuals can freely buy and sell interest in business enterprises.(30) Further, foreign enterprises are free to repatriate investment profits.(31) In addition to providing legal guarantees for foreign investors, the GOK has taken steps to provide certainty with respect to tax treatment, and to encourage direct investment. The 1995 Tax Code introduced a value added tax, income taxation of both individuals and enterprises, and a variety of excise taxes, which are clearly spelled out. In 1997, the GOK implemented the Law on State Support for Direct Investment, which provides incentives in certain priority sectors, including production infrastructure, processing industries, enterprises located in the capital city of Astana, housing and enterprises related to the social sector, and agriculture.(32) As described below, Kazakhstan's relatively high level of FDI is a strong indicator that the GOK effectively enforces these laws at the national level and actively encourages foreign investment. Developments in the Economy In many ways, Kazakhstan is an investor-friendly country with a generally consistent policy to improve the domestic investment climate. FDI is welcome in virtually all economic sectors, except in areas designated as natural monopolies (e.g., utilities).(33) Kazakhstan's oil and gas sectors have attracted much of the FDI flowing into Kazakhstan, however, other areas (e.g., the banking and metals sectors) have also attracted substantial foreign investment.(34) Between 1995 and 1999, the level of per capita FDI inflows into Kazakhstan exceeded the levels achieved in several market economies, such as in the Slovak Republic.(35) U.S.-based enterprises are the largest foreign investors in Kazakhstan, accounting for over 50 percent of investment in 1999. U.S.-based firms are engaged in about 300 registered U.S. joint ventures in Kazakhstan, twenty of which are large-scale projects in the oil and gas, mining, and energy sectors. These joint ventures are primarily responsible for the bulk of Kazakhstan's oil exports. Other large foreign investors in Kazakhstan include enterprises from Japan, South Africa, the United Kingdom, Germany, Turkey, and Switzerland.(36) Kazakhstan has high FDI inflows notwithstanding some local problems. For example, foreign investors generally perceive that sub-national governments eschew FDI in favor of domestic ownership.(37) There is some evidence that sub-national governments in Kazakhstan help local interests oust foreign investors who were allowed into downstream activities by the GOK.(38) It appears that resistance to FDI by some sub-national governments is based on fears about losing economic control of local enterprises to foreign ownership, however, such behavior has so far not dampened the high level of FDI into Kazakhstan. It is instructive that a range of U.S.-businesses operating in Kazakhstan have commented in the instant investigation, and all appear favorably disposed to the country's investment climate.(39) Assessment of factor Joint ventures and other forms of investment are permitted in Kazakhstan, and the GOK has been successful in promoting substantial FDI, in particular into the oil, gas, and metals sectors. While foreign investors generally perceive that sub-national governments in Kazakhstan favor domestic ownership, FDI levels are strong, and foreign industry's participation in Kazakhstan's economy is an important dynamic supporting market forces in the country. Overall, we believe that Kazakhstan has made significant progress under this factor. 4. The extent of government ownership or control of the means of production. The right to own private property is fundamental to the operation of a market economy. In addition, the scope and extent of private sector involvement in the economy often is an indicator of the extent to which the economy is market-driven. Legal framework In assessing this factor, there are two significant determinants of the extent to which the private sector is thriving in Kazakhstan: (1) privatization of industrial enterprises, and (2) land reforms. Privatization reforms. In 1995, the GOK implemented the Law on Privatization to enable the GOK to privatize virtually all segments of the economy. Specifically, the Law on Privatization gives the State the right to sell a number of government-owned enterprises.(40) Land reforms. In 2000, the GOK implemented the Law on Land Ownership, which recognizes the following concepts of ownership interests with respect to land: right of ownership, right of permanent land use, right of temporary use of a land plot which is in private ownership, easement, and other rights.(41) The Law of Land Ownership is an important reform because it codifies the right to own property, including land, which is important to the development of an effective private sector. Developments in the Economy As with other former Soviet republics in 1991, the state in Kazakhstan initially owned and controlled virtually all land, property, and enterprises. The GOK subsequently undertook comprehensive and systematic reforms which privatized a large portion of the means of production. Privatization reforms. Privatization reforms in Kazakhstan were quickly implemented from 1995-1997, with the private sector share of the economy climbing from 25 percent to 55 percent.(42) Privatization during this period included enterprises in virtually all sectors of the economy, and drastically reduced the share of state ownership. Privatization efforts have slowed since 1997. Between 1998-2000, the private sector share in Kazakhstan grew from 55 percent to 60 percent.(43) As a result, a number of large companies remain in majority state ownership.(44) In addition, the GOK continues to have minority holdings in enterprises operating in various sectors of the economy.(45) The causes for the slowdown in privatization reforms since 1997 are varied. One reason is that the GOK appears reluctant to quickly force insolvent SOEs into bankruptcy that are the major employers in certain towns or regions due to possible resulting social unrest.(46) Another reason for the slowdown in privatization is the fear of local vested interest groups and state managers in many sectors that privatization will lead to the imposition of foreign management and control and additional scrutiny.(47) The GOK is also now facing less budgetary pressure to privatize as a result of high oil revenues. The decreased rate in privatization is also in part due to Kazakhstan's weak bankruptcy laws, which allows weak SOEs to avoid insolvency.(48) Although the slowdown in Kazakhstan's privatization reforms has raised concerns that the GOK's policies will lead to a continued long term misallocation of resources, such concerns appear to be unfounded. Kazakhstan's SOEs operate in major sectors of the economy that are subject to market forces in the form of foreign and domestic private competition. For example, the oil sector is subject to extensive foreign competition, such that SOEs in that sector operate in an overall market environment. Furthermore, in the service sectors, commercial banks are also subject to foreign competition, while in the construction sector, domestic private enterprises provide a market-based alternative to SOEs.(49) Therefore, the existence of SOEs in these sectors does not prevent their prices and costs from being reliable measures of value. Another concern that has been raised is the GOK's view that certain industries are in "strategic sectors" requiring government involvement. The GOK recently announced that it intends to retain ownership of 17 SOEs.(50) Although many of these are natural monopoly providers (e.g., utilities, transportation), they also include enterprises in commercial sectors.(51) It appears that the GOK has embarked upon an industrial policy designed to diversify the economy away from overdependence on the oil sector by developing other enterprise sectors, including light industry.(52) However, in contrast to when Kazakhstan's economy was centrally planned, the GOK's industrial policy appears to be targeted to particular sectors with the purpose of reviving depressed markets and rejuvenating industrial growth, rather than to institute government control of the means of production. It is also fairly common for governments in Western countries to engage in such industrial policy, such as when market-based oil producing countries direct oil revenues into industrial projects in a strategy to diversify the economy. Therefore, such policies are not a per se indicator of a non-market economy. Land reforms. Only Kazakhstan citizens may own plots of land for personal farming, gardening and dacha construction. Foreign citizens and legal entities may own land designated for industrial and residential construction and may rent all other categories of land. The Law on Land prohibits private ownership of land plots designated for commercial agriculture (other than those for personal auxiliary farming, gardening and dacha construction, as pointed out above), land needed for defensive purposes and, among others, forestry and water reserves. Land plots designated for agriculture may be granted to foreign citizens for land use for a term not exceeding 10 years. Foreign citizens and legal entities cannot rent out land plots to which they have land use rights. The land use rights (which can be either permanent or temporary, alienable or inalienable, acquired for payment or free of charge) are a remnant of the old Soviet system when the State owned all land and granted rights to its land users. Unlike the Soviet system, a land user may now sell, mortgage or otherwise dispose of its land use rights received from the State. However, in all cases, the title to the land held under land use rights belongs to the State. Assessment of factor Most sectors of the economy are privatized, and many sectors benefit from robust foreign and domestic competition. However, privatization efforts have slowed markedly since 1997, in part because of GOK concerns about possible social unrest if it acts too quickly in forcing insolvent firms into bankruptcy. Nevertheless, Kazakhstan's lack of recent progress under this factor does not alter the fact that remaining SOEs operating in major sectors of the economy are subject to market forces in the form of foreign and domestic private competition. Competition in major sectors of the economy indicates that market forces are largely dictating output and pricing decisions in Kazakhstan. 5. The extent of government control over the allocation of resources and over the price and output decisions of enterprises. Decentralized economic decision-making is a hallmark of market economies, where the independent investment, input-sourcing, output and pricing actions of individuals and firms in pursuit of private gain collectively ensure that economic resources are allocated to their best (most efficient) use. Prices in such economies tend to reflect both demand conditions and the relative scarcity of the resources used in production. Legal framework For purposes of this factor, the Department is evaluating three main issues: (1) the degree to which individuals and businesses can engage in entrepreneurial activities, (2) the extent of price liberalization, and (3) resource allocation, specifically, the status of commercial banking reform. Entrepreneurship. Soon after emerging from the Soviet system, the GOK implemented a series of reforms designed to encourage private entrepreneurship and reduce government influence on the allocation of resources. The 1993 Law On Protection and Support of Private Entrepreneurship grants freedom of entrepreneurial activities, sets state measures to support private entrepreneurship, and prohibits state intervention into activities of private businesses. Private entrepreneurs have the right to make independent investment, production, distribution and pricing decisions.(53) The law prohibits issuance of legal acts that put government-owned companies in a more advantageous position than private companies. The 1996 Presidential Decree, On Additional Measures to Realize State Guarantees for the Freedom of Entrepreneurial Activities, limits the number of financial inspections (including tax inspections) to one a year and orders dismissal of officials who illegally interfere with entrepreneurial activities or issue illegal rulings or orders that impede entrepreneurial activities. A further Presidential Decree in 1998, On Protection of the Rights of Citizens and Legal Entities for the Freedom of Entrepreneurial Activities, prohibits local and national authorities from interfering with the work of individual entrepreneurs and small businesses. Kazakhstan's entrepreneurial laws are important because they establish the basis for property ownership and protection of property rights without government interference. Price liberalization. Price liberalization in Kazakhstan began in 1992 when the GOK implemented a decree on price liberalization introducing market prices for most goods.(54) With the exception of a few policy reversals during a limited currency devaluation, price liberalization was practically completed by the mid-1990s.(55) Exceptions were codified in 1998, when the GOK implemented the Law on Natural Monopolies and, in 2001, when the GOK adopted the Law on Competition and Limitation on Monopolistic Activities, both of which establish government control over natural monopolies, including the establishment of price regulation. Kazakhstan's price liberalization laws are significant in that they delineate the sectors in which the GOK may regulate prices, while other prices in the rest of the economy operate according to market forces. Banking reforms. An important measure of government control over production decisions and the allocation of resources is the degree to which the government is involved in allocating capital. Given that banks are an important allocator of capital, we need to evaluate the degree to which the State exercises control over the commercial banking sector, as opposed to allowing market forces to determine lending decisions. Banking legislation enacted between 1993 and 1999 includes the Law on Banks and Banking Activity, the Law on the National Bank of Kazakhstan, and the National Bank Normative Acts and Decrees.(56) These reforms focused on consolidation of the banking system, privatization of banks, and entry of foreign banks.(57) Banks with foreign participation (those having over one-third foreign capital) cannot be more than 50 percent of total registered capital of all banks in Kazakhstan. Companies registered in offshore zones are not allowed to own shares in Kazakhstan banks. Further, foreign banks may not operate in Kazakhstan through branches and are required to have either representative offices or subsidiary banks. The aforementioned laws strengthen Kazakhstan's private banking sector and help make it an effective allocator of capital. Developments in the Economy Prior to independence in 1991, Kazakhstan's economic output was highly specialized. Kazakhstan's narrow economic base consisted primarily of agriculture, energy production, metallurgy and metalworking. The breakup of the Soviet Union caused the centrally planned system to collapse, and led to a reconfiguring of the national economy. Today, the economy has a large services sector, led partly by expanding construction and commercial banking sectors. The industrial sector is more concentrated than ever, with the export-oriented energy and metals sectors dominating industrial output.(58) Other sectors, such as agriculture, have declined in importance. Entrepreneurship. In many developed and developing countries, small- and medium-sized enterprises (SMEs) often are an engine of economic growth without which development would be slowed. In Kazakhstan, SMEs today play a much less important role compared to developed countries or advanced transition economies.(59) This is in part due to occasional criminal network activity, as well as tax evasion schemes that have led many small- scale businesses to operate only in the informal economy.(60) Another reason why SMEs are underdeveloped in Kazakhstan is that entrepreneurs are unable to raise sufficient capital to underwrite new ventures. The large oil and gas sectors in particular have drawn such a large share of investment capital from the banking sector that non-energy related SMEs have had difficulty raising capital.(61) Although SMEs are generally small and undercapitalized in Kazakhstan, it appears that this is less a result of governmental control than the allocation of resources to Kazakhstan's most profitable sectors by its banking sector. Price liberalization. Overall, the laws that Kazakhstan has put in place to liberalize prices have been effectively implemented, and the GOK does not set prices, except for natural monopolies. The list of natural monopolies includes companies that are involved in: oil and oil products transportation via main pipelines; gas and gas condensate products transportation via pipelines; transmission and distribution of heat and power; operation of main railroads, provision of air navigation, airport and sea and river ports services; provision of telecommunication services via local line networks; operation of water supply and sanitation systems; and postal services. Companies included in the list of natural monopolies may not change their prices more often that once every three months. Their prices are subject to governmental review and approval. Although the list of natural monopolies subject to price controls appears to be extensive, the sectors subject to price controls in Kazakhstan are the same as those in which many Western countries exercise price regulation, i.e., the transportation, utilities, telecommunications, and postal sectors. Commercial bank reforms. Kazakhstan's commercial banks are fundamentally sound but small. The strength of progress and reform in Kazakhstan's banking sector has significantly increased the extent to which capital is allocated according to market forces. The NBK has methodically implemented a bank consolidation program that reduced the number of banks from 130 at the end of 1995 to 48 by mid-2000, and it intends to keep reducing the number to between 15 and 30 banks.(62) Foreign lending institutions are involved in 16 of Kazakhstan's banks.(63) Despite ambitious banking reforms and the involvement of foreign banks, Kazakhstan's early commercial banking experience was stymied by a lack of confidence in the system brought on by hyperinflation. Kazakhstan's early experience with inflation eroded both the value of bank loans and deposits because returns on investment failed to keep pace with price increases. However, inflationary concerns appeared to have finally been overcome beginning in 2000, largely as a result of Kazakhstan's strong economy. As price stability reduced the risk that future returns might be eroded by inflation, banks have increased their number of commercial loans, while the total asset base of commercial banks at the end of 2000 equaled 21 percent of GDP, up 63 percent year on year.(64) Bank lending rose by 85 percent between 1999 and 2000.(65) In the first half of 2001, bank lending grew by 88 percent to $2.7 billion (around 13 percent of GDP).(66) Total banking sector assets grew by 60 percent in the first half of 2001.(67) Although bank lending in Kazakhstan is on a market basis, total bank assets remain low, with the result that banks continue to play a relatively small role in financing the economy.(68) However, the relatively low asset base of commercial banks has not adversely affected economic development in Kazakhstan, largely because investment capital has been available in the form of FDI. Between 1999 and 2000, bank deposits also increased rapidly, growing by 72 percent.(71) Bank deposits are still exceeded by individual cash holdings in U.S. dollars, although this is not surprising considering the economy's earlier inflationary instability.(72) Commercial bank lending is primarily to commercial borrowers, with the industrial sector taking 28.5 percent of all credit outstanding by April 1, 2001, with a further 36.7 percent lent to other businesses in trade, while agriculture received 8.4 percent of the total. As investor concerns about inflation abate, banks are lending more in the national currency, with 48.6 percent of credit extended in local currency by March 2000.(73) The ratio of sub-standard loans in commercial bank portfolios has declined dramatically as debt restructuring and banking reform have borne fruit. Between 1996 and 2000, the percent of non-performing loans declined from 19 percent to 2 percent of total bank assets.(74) This compares to bad loan rates during 2000 of 3 percent in Hungary, 19 percent in the Czech Republic, and 5 percent in Latvia.(75) A potential problem for the large banks (about 80 percent of the banking system) is their concentrated and undiversified loan portfolios, which persist in part because risk averse banks focus their lending on blue-chip customers. The top ten borrowers account for 30 to 50 percent of the loan portfolio of five of the largest banks; the top twenty borrowers account for 40 to 75 percent of the loan portfolio.(76) Unlike Kazakhstan businesses, local citizens are wary of the reliability of Kazakh banks and generally keep their savings at home "under the mattress." Further, risk averse Kazakhstan banks have tended to offer consumer loans at high interest rates, which often frustrate small, budding enterprises.(77) The combination of consumers' reluctance to put savings in banks and persistently high lending rates neither promotes private bank savings nor private investments.(78) Assessment of factor The allocation of resource decisions now rests with the private sector, with the GOK largely limiting price regulation to natural monopolies. Further, market-based entrepreneurial activity is developing. In addition, the commercial banking sector is behaving as a financial intermediary. Overall, Kazakhstan has made significant progress under this factor. 6. Such other factors as the administering authority considers appropriate. Legal framework and developments in the economy Under this factor, the Department can address any additional issues relevant to consideration of market economy status. A number of economic considerations in Kazakhstan do not readily fit into any of the preceding five factors, and are therefore discussed in this section. These issues include the problem of corruption in Kazakhstan, barter, and Kazakhstan's bid to join the World Trade Organization ("WTO"). Corruption. Some commenters in the instant investigation asserted that corruption in Kazakhstan is pervasive and undermines Kazakhstan's claims that it is a market economy. The Department recognizes that corruption is a serious issue. Although we find the level of corruption to be a matter of note, it does not alter the fact that prices and costs in Kazakhstan are being generated through market forces. Moreover, we note that even in market economies, there exist varying degrees of corruption. According to one index, although Kazakhstan registers high levels of perceived corruption, it is no higher than levels for a number of market economies.(79) Barter. If the degree of barter transactions is sufficiently high, it can undermine confidence that prices reflect the true market value for goods and services. Although barter is not specifically a factor in a market economy analysis, its potential impact on the availability of price data is important in the context of applying the Department's application of the antidumping duty law. Barter in Kazakhstan, at both the consumer and commercial level, appears to be primarily caused by the persistence of commercial non-payments and wage arrears. However, the recent reduction in non-payments and wage arrears have reduced the need for barter transactions, as producers and workers are able to pay for goods and services in cash (generally either in tenge or U.S. dollars).(80) WTO accession. Kazakhstan's accession to the WTO is an important consideration insofar as it is indicative of the GOK's commitment to market openness and its integration into world markets, both of which help support market forces. Kazakhstan's accession bid remains subject to negotiation, however, the GOK has taken some steps to adopt trade policies and legislation which it hopes will bring its trade closer into conformity with WTO standards. For example, the GOK has adopted several normative- legislative acts in the foreign economy sphere, including laws that establish the legal, organizational, and economic basis for the creation and functioning of farms in Kazakhstan; a legal definition of partnerships with limited and other responsibilities, obligations of participants, and reorganization and liquidation of partnerships; a definition of unfair competition, including mechanisms for preventing and eliminating unfair competition; a code regulating the relations arising in the process of carrying out payments and money transfers in Kazakhstan; a law to protect the interests of consumers and entities of natural monopolies; and, a law to provide a legal basis for the foundation, obligations, protection of shareholders dealing with joint stock companies.(81) Assessment of factor While there are substantial concerns about corruption in Kazakhstan, we do not find it to be a significant factor differentiating Kazakhstan from other market economies. Barter transactions remain a problem in Kazakhstan, but barter appears to be declining in importance. Lastly, as part of its WTO accession bid, Kazakhstan can point to trade policies and legislation which it hopes will bring its trade closer into conformity with WTO standards. ASSESSMENT Although section 771(18)(B) of the Act enumerates six factors that the Department must consider in determining whether a country operates on market principles, the statute provides no direction or guidance with respect to the relative weight that should be placed on each factor in assessing the overall state of the economy. Therefore, the Department must weigh the degree to which economic reforms have been implemented based upon the unique facts in each case. The Kazakhstan economy, having emerged from a centrally planned system, has made reforms throughout its economy. Kazakhstan has transitioned from its former heavy, ubiquitous and "all-encompassing" central government to a new supportive, mainly regulatory state which basically aims at supplying infrastructure. Overall, functioning markets have replaced controls in the economy. As discussed in the preceding sections, an analysis of Kazakhstan's economic reforms indicates support for market economy status. Kazakhstan today has a fully convertible currency for current account purposes, and exchange rates are market based. Legislation on wage reforms is well advanced in Kazakhstan, with workers able to unionize and engage in collective bargaining, negotiating wages and benefits; further, the mobile workforce is free to pursue new employment opportunities. The GOK has been successful in promoting foreign direct investment, primarily in the oil and metals sectors. The allocation of most resource decisions in Kazakhstan now rests with the private sector, with the GOK largely limiting price regulation to natural monopolies; the state's involvement in Kazakhstan's banking system is now limited to NBK supervision of commercial banks; further, recent increases in bank assets and deposits, and bank consolidation all indicate that Kazakhstan's banks are behaving as financial intermediaries. In addition, price liberalization is practically completed in Kazakhstan. For one of the factors - the extent of government ownership - Kazakhstan's economic development presents a less straightforward picture. Although Kazakhstan has successfully reformed much of its economy, its privatization efforts have recently slowed. However, this does not preclude Kazakhstan prices and costs from being reliable measures of value because of the substantial progress that the GOK has made in privatizing its economy, as well as in fostering competition in major sectors. Given the totality of Kazakhstan's reforms in liberalizing its economy, we believe that Kazakhstan has completed the transition to a market economy. Overall, deregulation and a new regulatory framework for the normal operation of a market economy has progressively replaced the old system of regulation. Therefore, we recommend that the Department no longer consider Kazakhstan to be a non-market economy, and instead treat it as a market economy with regard to U.S. antidumping and countervailing duty laws. RECOMMENDATION Based on the evidence on reforms in Kazakhstan to date, analyzed as required under section 771(18)(B) of the Act, we recommend that the Department determine that (1) revocation of Kazakhstan's non-market economy status under section 771(18)(A) is warranted, (2) Kazakhstan has operated as a market-economy since October 1, 2001, and (3) this finding is effective for all current and future administrative proceedings. Agree _____ Disagree _____ _____________________________ Faryar Shirzad Assistant Secretary for Import Administration Signed: March 25, 2002 __________________________________________________________________________ footnotes: 1. The petitioners in this case are Eramet Marietta Inc., and the Paper, Allied-Industrial, Chemical and Energy Workers International Union, Local 5-0639 represented by Verner, Liipfert, Bernhard, Mcpherson, and Hand. 2. See letter to the Department from Verner, Liipfert, Bernhard, Mcpherson, and Hand dated July 30, 2001. 3. An Ancient Land of Kazakhs, see URL http://www.kz/eng/history/hist6.html 4. Central Intelligence Agency, The World Factbook, 2001, Kazakhstan. 5. U.S. Library of Congress, Kazakhstan - A Country Study Online, See URL: http://history1900s.about.com/gi/dynamic/offsite.htm?site=http://lcweb2.loc .gov/frd/cs/kztoc.html 6. Id. 7. Kazakhstan Country Report (London: Economist Intelligence Unit (EIU)Ltd., October 1, 2001), 48. 8. Kazakhstan Economic Sectors (London: EIU, September 14, 2001). 9. Kazakhstan Economy (London: EIU, September 14, 2001), 8. 10. Kazakhstan Investment Profile (London: European Bank for Reconstruction and Development (EBRD), 2001), 20. 11. Kazakhstan Investment Profile (London: EBRD, 2001), 9. 12. Kazakhstan law databank (US embassy Kazakhstan) in response to Department request. 13. Transition Report (London: EBRD, 2000), 174. 14. Annual Report on Exchange Arrangements and Exchange Restrictions, (Washington DC: International Monetary Fund (IMF), 2000), 468. 15. Kazakhstan Investment Profile (London: EBRD, 2001), 9. 16. Annual Report on Exchange Arrangements and Exchange Restrictions, (Washington DC: IMF, 2000), 468. 17. The NBK retains the right to impose restrictions on the payment currency for a resident's export operations. For this reason, the tenge is not considered fully convertible for certain capital account transactions, in contrast to current account transaction convertability. 18. Country Report, Kazakhstan, (London: EIU, January 2001), 11. 19. U.S. Agency of International Development, The Removal of Constraints to Investment in Kazakhstan Project, p.3; and, Memorandum of the President of the International Bank for Reconstruction and Development and the International Finance Corporation to the executive Directors on a Country Assistance Strategy for the Republic of Kazakhstan, January 16, 2001, p.4. 20. Kazakhstan law databank (US embassy Kazakhstan) in response to Department request. 21. Id. 22. As of December 2001, Kazakhstan has ratified 15 International Labor Organization Conventions: Conventions number 29, 81, 87, 88, 98, 100, 105, 111, 122, 123, 129, 138, 144, 148 and 155. 23. Kazakhstan Economy (London: EIU, September 14, 2001). 24. Between 1989-1998, per capita income (PPP) fell from $4,424 to $2,791. 25. Kazakhstan Country Report (London: EIU, October 1, 2001), 4. 26. Kazakhstan Economy (London: EIU, September 14, 2001) .66. 27. Id. 28. Kazakhstan Economic Trends (London: EIU, October 1, 2001), 7. 29. U.S. Department of State, FY 2000 Country Commercial Guide: Kazakhstan, p.50. 30. Id. 31. Kazakhstan Investment Profile(London: EBRD, 2001), 9. 32. Kazakhstan law databank (US embassy Kazakhstan) in response to Department request. 33. In April 1999, with the devaluation of the tenge, a 50 percent surrender requirement on export proceeds was introduced. However, this measure has since been rescinded. Earlier, the GOK conceded to domestic pressures and adopted temporary protectionist measures by re-imposing trade restrictions, including a ban on imports of food products from neighboring countries and high tariffs on food products, spirits, and tobacco. (See Kazakhstan Public Expenditure Review (Washington DC: World Bank June 27, 2000), Report No. 20489-KZ Volume I, Annexes and Statistical Appendices). 34. Transition Report (London: EBRD, 2001), 160. 35. International Monetary Fund, International Financial Statistics, August 2001. 36. Kazakhstan Investment Profile (London: EBRD, 2001), 8. 37. Country Report, Kazakhstan (London: EIU October 2000), 8, 22. 38. Id. 39. Comments in the instant investigation from Chevron Texaco Corporation, DHL International, Exxon Mobil Corporation, the International Tax and Investment Center, AES Corporation, the law firm of LeBoeuf, Lamb, Greene & MacRae, and Motorola (December 10, 2001). 40. The law provided that the following types of government property could not be privatized: land (unless otherwise stipulated by other laws - discussed below); specially protected nature reserves; military organizations and objects and their property that are necessary for ensuring national security; main rail lines, international and military motor roads, navigable waterways, beacons and maritime navigation equipment; oil and gas pipelines, power transmission lines; natural and artificial water reservoirs and dams; rural medical hospitals and specialized medical organizations, and hospitals that are natural monopolies in their districts; social welfare objects; primary and secondary schools that fulfill the constitutional right for education; and, objects of cultural and historic significance that are protected by the state [from Kazakhstan law databank (US embassy Kazakhstan) in response to Department request.] 41. Id. 42. At current levels, Kazakhstan's private sector share of GDP is slightly lower than for countries which the Department previously graduated to market economy status. For example, upon graduation to market economy status, the percent of GDP in private hands was 65 percent in Latvia, and 75 percent in the Czech Republic and Slovakia. [Transition Report (London: EBRD, 2001), Country Tables.] 43. Transition Report (London: EBRD, 2001), 160. 44. Kazakhstan: Joint Private Sector Assessment (Washington DC: World Bank), 4. 45. Memorandum of the President of the International Bank for Reconstruction and Development and the International Finance Corporation to the executive Directors on a Country Assistance Strategy for the Republic of Kazakhstan, January 16, 2001, p.14. 46. Country Report, Kazakhstan (London: EIU, October 2000). 47. Country Report, Kazakhstan (London: EIU, October 2000). 48. Weak bankruptcy procedures mean that firms cannot be forced into insolvency, allowing them to keep operating despite financial difficulties, by either not paying or delaying payments to their suppliers, creditors or workers. Country Report, Kazakhstan (London: EIU, July 2001), 22. 49. Kazakhstan Economic Sectors, (London: EIU, September 14, 2001), 110. 50. Kazakhstan Economy (London: EIU, September 14, 2001), 110 51. Id. 52. The World Factbook, Central Intelligence Agency, online version p.6. 53. Kazakhstan law databank (US embassy Kazakhstan) in response to Department request. 54. Id. 55. In April 1999, with the devaluation of the tenge, a 50 percent surrender requirement on export proceeds was introduced. However, this measure has since been rescinded. Earlier, the GOK conceded to domestic pressures and adopted temporary protectionist measures by re-imposing trade restrictions, including a ban on imports of food products from neighboring countries and high tariffs on food products, spirits, and tobacco. ((See Kazakhstan Public Expenditure Review (Washington DC: World Bank June 27, 2000), Report No. 20489-KZ Volume I, Annexes and Statistical Appendices). 56. Transition Report (London: EBRD, 2001), 160. 57. Memorandum of the President of the International Bank for Reconstruction and Development and the International Finance Corporation to the executive Directors on a Country Assistance Strategy for the Republic of Kazakhstan, January 16, 2001, p.70. 58. Kazakhstan Country Profile (London: EIU, September 14, 2001). 59. Memorandum of the President of the International Bank for Reconstruction and Development and the International Finance Corporation to the executive Directors on a Country Assistance Strategy for the Republic of Kazakhstan, January 16, 2001, p.67. 60. Id. 61. Kazakhstan Country Report, (London: EIU, October 1, 2001), 12. 62. Kazakhstan Country Report (London: EIU, October 1, 2001), 95. 63. Transition Report (London: EBRD, 2001), 160. 64. Country Report, Kazakhstan (London: EIU, July 2001), 18-19. 65. Economic Policy Outlook: Kazakhstan (London: EIU, April 10, 2001). 66. Transition Report (London: EBRD, 2001), 159. 67. Id. 68. Kazakhstan's bond market is also quickly expanding. The greater stability in monetary and fiscal policy and the rise in oil prices in 2000 have restored confidence in the government debt market. As a result, investors are now willing to buy tenge-denominated paper and the GOK has been able to extend the maturity of its debt.(69) 69. Country Report, Kazakhstan, The Economist Intelligence Unit, July 2001, p.16. - - - (70) 70. Country Report, Kazakhstan, The Economist Intelligence Unit, October 2000, p.18. 71. Economic Policy Outlook: Kazakhstan (London: EIU, April 10, 2001). 72. Kazakhstan Country Report (London: EIU, October 1, 2001), 95. 73. Country Report, Kazakhstan (London: EIU, July 2001), 18-19. 74. Transition Report (London: EBRD, 2001), 159. 75. Transition Report (London: EBRD, 2001). 76. Memorandum of the President of the International Bank for Reconstruction and Development and the International Finance Corporation to the executive Directors on a Country Assistance Strategy for the Republic of Kazakhstan, January 16, 2001, p.70. 77. U.S. Department of State, FY 2000 Country Commercial Guide: Kazakhstan, p.66. 78. Kazakhstan Public Expenditure Review (Washington DC: World Bank, June 27, 2000), Report No. 20489-KZ, Volume I, Ch.1. 79. Transparency International online, March 20, 2002. 80. Measuring Governance, Corruption, and State Capture: How Firms and Businesses Shape the Business Environment in Transition Economies (Washington DC: World Bank, April 2000) Policy Research Working Paper, Exhibit I. 81. Kazakhstan Investment Profile (London: EBRD, 2001), 11.