Post-Soviet Integration - New Hopes

By Danyil Rozanov

The process of the Common Economic Space launch preparation goes on. This is a new integration mega-project within post-soviet area. On July 1st 2011 starts a new formation stage of the Common Economic Space of Russia, Belarus and Kazakhstan. Customs bodies finish the performance customs control over the goods within internal borders of the Customs Union states – the most important stage of the CES establishment. Its initiators underline success achieved within development of common internal market of the CU states undertime. The EU states spent 36 years on that; Russia, Belarus and Kazakhstan with joint efforts managed to do that in a year. It is supposed that the CES starts operating on January 1st of 2012.

Common market of goods and services demands from the CU member-states mutual recognition of licenses, harmonization of laws and common line on third states. Other important sphere includes general labor market and free movement of citizens inside the CES, as well as joint development of infrastructure. Common energy market demands coordinated tariff policy. This Eurasian union is opened for the entrance of new states, and maybe Kyrgyzstan and Tajikistan shall joint it.

Today Russian customs bodies have finished customs procedures and all functions on customs control towards the goods and vehicles flowing into the territory of the Russian Federation, which were performed at checkpoints through the state border of the Russian Federation along its Kazakhstani side.

At Russian-Belarusian border in the Notifications Acceptance Point (NAP) they have finished the recent procedures on transit goods control from third states. NAPs have been eliminated.

According to the Federal Customs Service of the Russian Federation, the status of the state border between Russia and Kazakhstan shall be kept after July 1st 2011. By this any signs of state border shall absent along Belarusian part of Russian border.

Customs services of the three states shall exchange with main information on each goods consignment, processed within their territories. Information exchange and other forms of interaction within the terms of the common customs space allows replying on occurring risks on time.

At the moment the procedures on formation of the Common Economic Space proceed. In the frameworks of this space they develop terms for structural reformation of the three states’ economies, more favorable terms in comparison with the existing ones for business. Contractual-legal basis has been developed, which is important for the start of the Common Economic Space, and which shall grant a number of benefits for the three states.

However the extension of the Customs Union and CES participants shall not happen that fast, as it was with the three post-soviet states. For example, Kyrgyzstan is not yet ready to join the Customs Union. And it is not due that it holds Presidential elections in October. It’s just the authorities haven’t yet managed to calculate the consequences of such entrance, stated the President of Kyrgyzstan Roza Otunbayeva. According to her, the decision on the entrance into the Customs Union of Belarus, Kazakhstan and Russia should be adopted by the Government of the Republic.

“There are many unbiased reasons, under which Kirgizia should join the CU. The market is really coordinated – Kazakhstani and Russian markets. The market is not only for the goods but labor and capital. That is why for us this represents a significant benefit for sure ", - noted the head of the state. She also said, that hasn’t yet read any serious study, report in this subject, where there would be specified positive and negatives sides of the entrance. By this, we should also add the membership of Kyrgyzstan in the WTO. Yet, we’ve heard about compatibility of the membership in the CU and WTO from Dmitry Medvedev. And the Prime Minister of the Russian Federation Vladimir Putin declared that Kazakhstan, Russia and Belarus intend to enter the WTO as a common customs territory. Brussels and other western capitals do not agree with the kind of opinion. So 17-years talks on inclusion of Russia into the WTO shall prolong for indefinite period. But yet the kind idea seems to be still-born. And each of the three CU-members keeps on with individual talks on the WTO joining, which could give for the future CES sufficient indefiniteness. More clear has become the prospect to attract Ukraine into the Common Economic Space. Thus Viktor Yanukovych stated that Ukraine should sign the framework agreement on cooperation with the Customs Union in the format “3+1”, and then to fill it with definite content. But Russian Prime Minister Vladimir Putin didn’t manage to persuade Ukraine to adopt some definite decisions on entrance into the CES Customs Union. In course of private talks between Putin and Ukrainian President Viktor Yanukovych, the last one maintains his line towards the Customs Union...

Recently this line was announced during the interview for the radio-station “Ekho Moskvy” Minister of Foreign Affairs of Ukraine Konstantin Grishchenko. He said that Ukraine respects the choice of Russia. At the same time Minister said, that they consider the fact that our Russian friends respect also our choice. In particular, the issues of free trade areas – Ukraine solves within the framework of the World Trade Organization and its regulations. “Russia hasn’t yet joint it, but can’t wait any more till they create the conditions for Russia to joint the WTO. We would like very much for this to happen as soon as possible”- noted Grishchenko.

The head of the Ministry of Foreign Affairs also doesn’t observe any contradictions between the desire of Ukraine to be an integral part of Europe and its intention true and politically reasoned in the law on foreign and domestic policy of Ukraine – to be a real strategic prospect partner for Russia.

“We have clearly defined our line on our future in the context of WTO participation, the EU talks on Associations Treaty to include the treaty on free trade area. We are interested in that eventually for Russia and other states of the Customs Union to have the same trade area” – declared Foreign Affairs Minister of Ukraine.

It’s worth to remind that Poland as the current EU Chairman, considers one of its main goals to assist the finalization of the talk between the EU and Ukraine on a free trade area by the end of the year.

And meanwhile the Customs Union of Russia, Belarus and Kazakhstan proved anti-damping measures: increase of tariffs on Ukrainian manufacture goods that from now on shall be followed not only by Moscow, but Astana and Minsk as well.

New measures shall touch upon steel pipes up to 820 mm in diameter, technical fabrics from polyamide and some other goods important for Kiev. By exporting to the former USST states they shall inevitably lose compatibility as a result of adopted measures.

Therefore this is a problem of Ukraine finances, which hasn’t yet recovered from the economic crisis of 2009. Moreover, as the expert of a influential Razumkov Center for Studies Vasilij Yurchishin states, the kind of measures can be adopted by Eurasian Customs Union also towards other goods imported from Ukraine.

As many analysts think, with the kind of means Moscow in fact forces Ukraine to join the European Union.

At the moment official line of the country is still pretty indefinite: President Viktor Yanokovych underlined that it is important to hold talks on the Customs Union participation separately, without mixing this issue with the approval of the free exchange area with the European Union.

In its turn, Brussels, which is the orientation point of not only democratic opposition headed by the former Prime Minister Yulia Timoshenko but also some other layers of Parliamentary majority, indicated that the participation in the both project is impossible, and Kiev should choose the side. According to Ukrainian independent economists, introduction of quotas and limitations from Russia starting from July 1st shall force Ukrainian manufacturers to reorient definitely on European markets. This shall train a more flexible market mechanism. And it seems that the authorities are ready for that.

For Ukraine also not only European markets should be opened, considering the signing in the end of the year of the free trade area treaty, but also Chinese market. By this it’s noteworthy that after the declaration of Russia about the introduction of limitations towards Ukrainian pipes supplies, China expressed its willingness to purchase them from the manufacturers. Kiev is convinced that Ukrainian importers shall suffer only within a short-term prospect. The same concerns also meat and dairy products, which is prohibited in the Russian Federation in the essence. That is why the decision of Russia in the frameworks of the Customs Union in prospect for Ukraine shall have positive effect as the representatives of Ukrainian opposition in the Parliament forecast. By the way, next year there will be not only Presidential elections in Russia, but also Parliamentary ones in Ukraine.

Let’s remind that the Customs Union has approved a list of goods, which shall be affected by anti-damping and social protection measures. Except for that, Russia doesn’t wish to withdraw duties on Ukrainian sugar, being afraid of the damages for the CU sugar market.

But Ukrainian problem is not the only one that arose by the CU establishment. There problems inside this integration union.

Recently in Saint-Petersburg during the International Economic Forum the President of Kazakhstan Nursultan Nazarbayev expressed an idea “for the Customs Union states to develop the principles of common (coordinated) foreign trade policy inside the common customs area, as well as outside its borders. For the CU member-states this is an extremely urgent issue. Yet there is no adequate trade policy in the three CU states. These states differ with the level of economic development, have various level of compatibility of the export sector of national economies. According to experts the equation of the economic development levels is more correct to be held according the index of the Gross Domestic Product (GDP) per capita, calculated under the purchasing-power parity (PPP). Under the estimations of the International Monetary Fund in 2011 this index for Kazakhstan comprised – $12 603, for Russia – $15 837, for Belarus – $13 909.

Total share of the three states in the World Gross Product of the three states PPP is 3,45%, and in the world export even less – 3,02%. That is why one of the main goals of the CES is to increase the contribution of the economies of its states into global trade indexes. And this can’t be achieved without development of common foreign trade policy of the CU member-states. As an argument the kind of example is set.

Within 10 years of the Eurasian Economic Community existence, where Russia is traditionally the main trade partner of the member-states of the integration union (except for our three states, Kyrgyzstan and Tajikistan are also the members of the community), the specific weight of export supplies to Russia has expressly reduced. Export share of the products from Kazakhstan to Russia reduced from 92,0 to 80,6%, from Belarus to Russia – from 99,0 to 94,3%. According to PhD in economy B. Khusainov this is another obvious reason for the urgency to develop common foreign trade policy inside the customs territory, as well as outside its borders. He also considers that the establishment of the Customs Union is a due answer on promoting globalization processes and challenges of world economy in general and international trade in particular. However the CU establishment was for Kazakhstan more profitable under the condition of joining to the treaties of the World Trade Organization (WTO) with common customs territory. But the kind of joining variant today is unlikely, also considering different achievement in talks on inclusion into the WTO each of the three CU members. First of all this concerns pretty moderate achievements of Belarus. There are also political problems. The WTO wishes to add solution of various problems to the WTO entering process of the CU members. Many contradictions shall be overcome. And they will occur constantly.

By the way, until now no integration union is a WTO member. For example, old European Union member-states joint the GATT (General Agreement on Tariffs and Trade – the WTO predecessor) one by one.

Nevertheless WTO membership first of all is urgent for export companies, which face very serious anti-damping procedures in all states, imposing them. After joining the WTO, anti-damping procedures are not possible. I.e. this is for the prospect of extended representation of national companies within foreign markets.

And one more thing. Almost 90% of global GDP is covered by the WTO members. And if a state is not a member than it seems to cause some troubles. And that is why analyses of investment climate also consider the following: is a state the WTO member? If not than it seems that something is wrong there.

But today it’s evident that Russia from its side is not really in rush into the World Trade Organization. All companies which for example work within domestic Russian market, are not interested in the WTO joining. And they are absolutely not interested for cheap Chinese goods to fill Russia when customs tariffs are reduced.

Except for that in comparison with other CIS-states Russia refused of entrance on rigid terms. I.e. with the tariffs like 4% as Ukraine agreed. Up to 11% Russia undertakes the liabilities on customs barriers. Naturally it’s more complicated to agree on high customs barriers than on low. There is a dominating view that if a state agrees not to secure its market than it will be easier for it to join the WTO.

Despite that in the WTO agreement for integration unions there are no special preferences, the common line of the CU states would be beneficial for them. However, as Kazakhstani and other experts note, the statement of V. Putin on joint entrance into the WTO a bit later, in the essence, was disavowed by the President of Russia Dmitry Medvedev. And the process flew under another scenario. Many of these experts prone to the idea that there are fewer benefits from the CU comparing with losses. Problems related to the CU and CES demand serious professional studies.

Yet it’s impossible to state expressly, that for the last year trade relations between Kazakhstan, Russia and Belarus have extended significantly, and the integration processes have deepened.