Administrative barriers to business development

March 28, 2014

In our practice, we often face with the so-called administrative barriers, which hinder development of entrepreneurship in Kazakhstan. We believe that other practitioners can identify many of such barriers, but we are going to focus only on those that are relevant today in accordance with our practice:

1. Intellectual property

Kazakhstan legislation does not prohibit concluding a complex license agreement to transfer exclusive rights to various intellectual property objects. The issue is that there is no legal procedure for registration of complex transfer of exclusive rights[1]. In other words, a separate registration for each object of intellectual property (trademarks, patents, selection achievements, etc.) is provided. In particular, the same franchise agreement is not registered in the Committee on Intellectual Property Rights of the Ministry of Justice of the Republic of Kazakhstan. It should be noted that currently there is on consideration the bill “On amendments and additions to some legislative acts of Kazakhstan on issues of legal regulation of intellectual property”, which provides for the registration of a franchising agreement.

But while the bill does not become a law, in practice it is necessary to enter into a number of separate license agreements, which will involve the transfer of similar objects of exclusive rights, for instance, license agreement for the transfer of the exclusive rights to trademarks, license agreement for the transfer of exclusive rights to patents and etc. Otherwise, the license agreement does not pass state registration, which in turn entails its invalidity.

2. Participation in public procurement

Requirement to establish a branch

Foreign companies have to set up branches to participate in public procurement, as public bodies and (or) public legal entities (customers) insist on it (even though the law does not contain such a requirement). Also, foreign companies have to establish a branch for obtaining a digital signature (“DS”), which is required to participate in electronic tender. The DS is not issued without the branch. In turn, the registration of the branch is unnecessary inconvenience to the foreign company: search of director you can trust, opening a bank account, rent, taxes. Moreover, since this is a tender, it is unknown whether or not a foreign company to win the state tender.

Typical contract

The use of the so-called Typical contract on public procurement[2] should be highlighted separately. In practice, government bodies (customers) refer to this contract, as if it is the law. Moreover, to make any changes in the Typical contract is separate issue, which is complicated if the winner of the public procurement is a foreign company. So, all the fundamental provisions on freedom of contract simply reduced to “zero”, in other words, it is impossible to make any changes to the Typical contract, for instance, the definition of currency, indexing, applicable law, responsibility, etc.

If the winner refuses to conclude an agreement on the terms of the Typical contract, there is a risk that customer (the public body or public legal entity) could file a claim in a court for recognition of the winner as mala fide (bad faith) participant of the public procurement.

Way out of the above situations is seen in the enactment of prohibitions for public bodies and (or) public entities:

  • to require additional documents not listed in the Law of the Republic of Kazakhstan “On Public Procurement” dated July 21, 2007 № 303-III LRK (“Public Procurement Law”);
  • to limit the tender winner with the Typical contract’s conditions.

It should be also given a legal assessment of the Typical contract in the Public Procurement Law, stating that it is the only model that can be modified by mutual agreement.

We will continue our heading about administrative barriers. Follow our news.

[1]For information, it should be noted that the license agreement shall enter into force on the date of registration.

[2]Typical contracts are stated in Rules for conducting the public procurement, approved by Decree of the Government of the Republic of Kazakhstan dated December 27, 2007 № 1301

Yersultan Mussaliyev