During President Hu Jintao's visit to Kazakhstan in 2003, Nursultan Nazarbayev, Kazakhstan's president, proposed for the fourth time a plan to build a free trade zone along the border of the two countries.
 
He indicated a potential China-Kazakhstan free border trade zone should be located between the Yili Kazak Autonomous Prefecture, Xinjiang, and Almaty, Kazakhstan. From the Chinese side, the zone is planned to be established in the city of Horgos, one of the prefecture's key port cities to Central Asia.

If successful, the zone will be the first border free trade zone in China. The zone is also part of the China-Central Asia free trade zone proposed by Premier Wen Jiabao to the Shanghai Cooperation Organization (SCO) in 2003. The Horgos zone is believed to be an example for other Central Asian countries.

Political security and economic cooperation are two branches for further development of the SCO. The Horgos zone will provide experience of free trade zones for the SCO and promote its economic integration.

The five Central Asian members of the SCO vary economically while China's economic advantage is evident. The China-Kazakhstan border free trade zone would lay a good foundation for China's enterprises and products in Central Asian, West Asian and European markets.

Horgos is the largest land port in China's western region, and it has easy access to the Central Asian market.

The establishment of the Horgos Free Trade Zone will give full play to the New Eurasian Continent Bridge. When the zone is completed, Horgos will be a center for transportation, business, tourism and finance.

The setting-up of Horgos is strategic to China and Kazakhstan and to countries along the Continental Bridge.

Kazakhstan has pinned high hopes on Horgos, and a decision has been made to build a railway to connect it with Horgos by 2006.

The border market in Horgos was responsible for deals valued at US$660 million last year, accounting for more than 30 percent of the country's total border market trade.

The free trade zone is expected to boost bilateral trade between China and Central Asia.

A renewed Central Asian market will mean enormous business opportunities for an increasing number of companies in western China.

Abundant natural resources in Central Asia remain the focus of Chinese firms' cooperation. They cover areas such as petroleum, railway construction, household appliances, light industry, chemical industry, agriculture and engineering contracting.

Central Asian countries have played a growing role in trade and economic cooperation in China's western provinces and autonomous regions such as Shaanxi, Inner Mongolia and Xinjiang.

For example, trade with Central Asian nations and Russia made up 60 percent of the Xinjiang Uygur Autonomous Region's imports and exports in 2003.

According to estimates, the trade volume of the port will reach US$2.224 billion in 2010, tripling that of 2003, after the free trade zone is established.

Because of potential benefits, the process of setting up the border free trade zone should be expedited, according to a study.

First, the Ministry of Commerce should sign an agreement to launch negotiations on the free trade zone with the Kazakhstan Industry and Trade Ministry. The agreement should provide a framework to identify principles for free flow of goods, capital and entrance. And the procedures and timetable for negotiations should also be included.

The negotiation and setting up of a free trade zone, in practice usually takes a decade. It is suggested that it will be five years in this case because the Horgos free trade zone covers limited territory.

Kazakhstan, which is still not a member of the World Trade Organization, is not familiar with the concept of a free trade zone. The Chinese side should submit a draft agreement to Kazkhstan for consideration and in preparation for the negotiations.

It is proposed that the China-Kazakhstan free trade zone will have a zero tariff without any trade barriers. The zone will combine all favorable policies offered by special economic zones, development areas and export-processing zones.

The zone will occupy an area of 177.33 square kilometers on the Chinese side, and Kazakhstan will also allocate an equivalent area.

The free trade zone will allow the entrance of citizens from both sides with only identity cards.

Both sides should make more specific moves towards a possible free trade zone. A negotiating committee should be set up and a joint expertise group will begin to work on a feasibility study.

Both the local governments in Yili and Almaty should also form a working group to enable further communication.

When talking about the free trade zone with Kazakhstan, the Chinese side should step up the construction of Horgos Port.

According to the current plan, the Chinese side will set up the Horgos International Border Cooperative Center first as the pilot sector of the free trade zone. The center will cover 3 square kilometers, two on the Chinese side and one on Kazakhstan's.

Then the pilot zone will be expanded to 23 square kilometers, 73 square kilometers and 177.33 square kilometers.

The Chinese side should set up a bonded area and an export-processing zone before the free trade zone is started.

Financial authorities and commercial banks in China should improve foreign exchange services to facilitate the growth of border trade between the two countries.

The settlement is an issue that needs the attention of financial administrators and bank officials because smooth, efficient settlement services are crucial for easy imports and exports.

On the Chinese side, financial authorities should advise border branches of Chinese commercial banks to forge ties with Kazakhstan banks to serve as corresponding banks for one another. This will result in more settlement channels for traders.

Banks should improve their services to help Chinese exporters more easily exchange foreign currency into renminbi.

(China Daily November 2, 2004)