Russia within Integrational Processe

By Daniil Rozanov

The emergence of the Customs Union of Russia, Kazakhstan and Belarus has incited concern of the European Union. Within the EU program “Eastern Partnership” they declared about the establishment of free trade area with the EU, which may negatively influence the functioning of the CU and Common Economic Space (CES) establishment.

Starting from January 1st 2010 the Customs Union has been governed by a supranational body – Customs Union Commission. This fact is exceptionally significant, as up till now we haven’t managed to found supranational bodies within post-soviet area. The Commission has been granted the authority of the three states within the sphere of customs-tariff policy, particularly, setting of duty rate. Two thirds of votes are needed to adopt decisions. Russia possesses about 60% of votes, Belarus and Kazakhstan – 20% each. Considering that more than 90% of the Customs Union market belongs to Russia, the terms of the Russian Federation voting in the Commission are not proportionate to its contribution into the integrational project. In 2010 a list of issue arose, the decision on which should be adopted on consensus basis. Hard line of Moscow towards the access of Minsk to duty-free oil proves the statement that energy factor lies within the ground of integration within post-soviet area. The peculiarity of the CU remains to be the fact that two states of three are big energy carriers suppliers to the world market, and one of the states – imports energy and transits oil and gas to European market.

Natural disagreements between partners in this case were solved by developing complicated schemes of importing state donating. In reality loyalty of Minsk was attracted by resource aid. Plenty of other problems remain still to be urgent within the frameworks of the established CU, which are able to lead the project to crisis. In particular, Moscow still doubts the efficiency of control within external orders of the CU by only Belarusian and Kazakhstani customs officers. In reality as some Russian experts think the borders of the Russian Federation are given away to its neighbors, and its domestic market is opened. Till this moment there has been the uncertainty about common customs information (data base). There are still troubles with the attempts of foreign exporters to use the Republic of Belarus and Kazakhstan as access to the fundament of the CU – Russian market (more than 90%). Particularly, the government of the Republic of Belarus counts to turn its country into a peculiar warehouse and finishing production of Chinese goods, which would legally and duty-free go to the Russian market. Minsk figures on to erect in the Republic a powerful car-assembling manufacture of Chinese car brands, which would compete with the manufacturers of western car producers, located in Russia.

China actively uses the participation of Kazakhstan in the CU, turning it into transshipment base for Chinese FMCG. Otherwise it’s difficult to understand how possible is for example the customs estimation of plasma TV-set in Kazakhstan to be 100 dollars.

On April 1st 2011 transport control within Russian-Belarusian borders was withdrawn. There are no doubts that mainly the flow of Chinese goods in near future will extremely negatively affect first of all Russian small business in the sphere of small wholesale – in fact an integral part of electoral basis of the ruling Russian regime. Afterwards, it will completely destroy the remains of Russian light industry, including footwear one. Agriculture will also suffer. Saying without bias, Russia is not integrating with the economies of Kazakhstan and Belarus. These economies and markets are really insignificant comparing with Russian ones. This means that Russia will not face some synergetic effect from unification with Astana and Minsk.

In reality, Moscow is gradually entering the economic sphere of Beijing with the help of Belarusian and Kazakhstani intermediary.

At the moment without accomplishment of a full-value CU establishment, partner-states launch the development of the Common Economic Space, which is a serious problem for the CU partners. Several dozens of treaties should be implemented to enter the CES, number of which in particular lay within the frameworks of macro-economic regulation or the sphere of financial policy unification (concordant at the top level). This will carry revolutionary character for economic models of Kazakhstan and Belarus.

Especially hard the transition to the CES can be for Belarusian economy, where state sector comprises more than 75%, all big business operate under the control of Presidential bodies and economy is regulated with post-soviet administrative methods. Transition to four freedoms of movement of goods, labor, services and capital within the frames of the CES threats Belarusian economy with reforms shock, which may result into the change of political power in the country.

The situation is complicated with the fact, that only within the frameworks of a full-value CES energy integration is possible for example between Russia and Kazakhstan.
The New Attempt of Integration

Russian authorities starting the new attempt of integrational process under its patronage within post-soviet area grounded on the fact that after the economic crisis of 2008-2009 the intentions of post-soviet states to joint integrational processes would promote. During post-crisis period the states of the customs “Three” gain a unique chance to recognize common interests, objectives and tasks. In practice, it is stated that Russia at the moment will be able to “restart” the integration in the region.

However, the set objectives and tasks of the Russian Federation within integrational projects in post-soviet area, as well as the benefits from launching other stages of economic integration do not call enthusiasm.

Integrational economic interests of Russia are related with the attempt to assure stable and balanced development of Russia. In this format they observe the intensification of Russian capital within the neighbor-states markets. But the most attractive assets of Kazakhstan for Russian business have been privatized by foreign players for long – the USA, EU and China.

Except for that it is considered that integration within the CU frames will promote broader use of transit status of the Russian Federation (from the ports of Pacific Ocean to Belarusian Brest). However, basically, transit status is quite used within the frameworks of EurAsEc. The issue of transport tariffs unification is being considered.

The CU has revived the hopes to reduce mutual competition of individual industries of Belarusian and Kazakhstani economies with Russian one, which also is doubted as in the result establishment Russia makes significant strategic concessions within its market by the CU and CES. It is considered that in the frameworks of the CES member-states will gain a possibility to coordinate the efforts in world markets, primarily energy carriers markets. The CU and CES should increase investing attractiveness of the “Three” economies. But also here troubles are observed, as it is hard to imagine that international energy market would experience the effect of joint efforts of oilers of Russia and Kazakhstan greater than now.

The most significant impetus for Russia within the process of the CU and CES development is the intention to gain access to the number of mineral deposits lying with the territory of Kazakhstan. In general resource factor is extremely significant for Russian economy modernization and remains to be one of the leading factors in the CIS in general, but this problem is similar to the options of Russian business investment in Kazakhstan and Belarus.

The main resource of the Republic of Belarus is its transit status. But with the round pipelines commissioning - Nord Stream and BPS-2, as well as promotion of wheeled transit through the territory of Latvia, the transit status of the Republic of Belarus will be deeply rusted.

Considering power and specific weight of Russian economy within the scale of the CU and CES one shouldn’t minimize or even deny the influence of integration with Russia on existing economic structure in Kazakhstan and the Republic of Belarus. With the extension of the field of economic integration Belarusian and Kazakhstani economies, naturally, will be greatly reformed, their structure will fundamentally change in accordance with the CES philosophy. Otherwise unreformed sectors of the common CES economy will be destroyed as a result of competition.

Such complicated processes will bring the elements of political instability, which should be considered by the CES development.

Also there are doubts about such impetus for accelerated CU and CES establishment as  the maintenance of common outlet market of member-states of the project for the goods of processing industry, first of all Russian one.

It’s noteworthy that the scope of sales of Russian industrial goods to Kazakhstan and Belarus reduces each year. Moreover, Russian goods more often lose within the competition with the same goods, getting to the markets of not only the customs “three”, but also all post-soviet area from China. China actively destroys cooperational relations with the businesses of the three states, substitutes not only Russian goods for the consumers in Kazakhstan, but at the same time makes incompatible the products, for example, of Belarusian factories in Russian market.

It’s noteworthy that already now in 2011 Chinese import to Russia in scope is higher than the whole import from all the CIS states. There are no reasons for the export of industrial goods from the CU and CES states to Russian markets to increase significantly, as, which was found during the CU operation, more China goods come to Russian market under the image of Belarusian or Kazakhstani ones.

We should acknowledge that the maintenance within the export structur of Russia’s and Kazakhstan’s monopolist role of energy carriers doesn’t promote integrational processes between them. There is a threat that within the frameworks of the CES only energy integration will be accomplished, as the one lying within direct export trend. The CU states supply to world markets only raw materials, which puts the CU project as well as the CES into quite ambiguous situation – the projects become more similar to the regional variants of OPEC, etc.

Serious problem of Russian dominance in economic integration within CIS area is the absence of a wide range of goods of investment value, which forces the CU partners, as well as other CIS states, to orient on the import of investment value goods from the EU, China, Japan, South Korea, the USA.

Recently outlined growth of export of Russian goods to the CU states, other CIS republics is greatly related with the consequences of economic crisis of 2008-2009. At the moment Kazakhstan and Belarus have definite financial troubles to extend import of investment goods, as well as the goods of high quality from third states.

It’s hard also to agree that the common transport infrastructure (preserved from the USSR period) can be considered one of the leading factors, promoting the integration of states of the CU and CES. Main transport corridors within the frames of the CU orients on export of raw materials and energy carriers and only partially may perform functions of interregional transportation infrastructure.

The absence in Russia of developed political-imaging integrational project keeps on stimulating the addressing of ruling elites and political classes of the CU partner-states to the European Union. It results into the fact, that the participation in the CU and developing CES can be observed within temporary format, specific stop, urgent to enhance economies before the stage of inclusion into integrational processes, related with the European Union.

According to Russian analysts, the only real possibility to develop integrational projects under the leadership of Russia to attract partners remains to be the use of Russian resources, including financial and raw materials, as well as Russian market.

We may agree with those experts who think that Russia values more about integrational processes strategic objectives, geo-economic ones the accomplishment of which takes longer period. At the same time the CIS partners observe their interests in gaining current benefits from the ongoing process, they are not interested in gradual one as well as gradual move towards set strategic goals, as they beware of political stage of integration which is able to result into sovereignty infringement.

Moscow feels more the intention of the partner-states leadership to observe the EU and China as regional counterbalances to Russian economic and political domination.

The biggest problem still comprises the integration price which Russia is ready to sacrifice. We should consider that the main factors leading to disintegration of the region of post-soviet area are unbiased. It’s noteworthy that unbiased reasons that lead to the emergence of the Customs Union as a rule carry short-term and medium-term character. They are connected with post-crisis period.

The practice of financing of integrational processes of 90-s of previous century and the first decade of the XXIst century is hard to be acknowledged as positive.

Two main objects of Russian financial-resource and market support – Belarus and Ukraine, have turned out to be the most complicated partners for economic integration.

Despite such massive, unprecedented, financial and resource aid, the relations between them from the one side, and Russia from the other have repeatedly reached the state of acute political crisis. Ukraine was left behind of all main integrational trends within post-soviet area. Kiev observes itself within the EU free trade zone. The hopes for the inclusion of Ukraine into the CU are also doubtful.

Long-term objectives of integrational projects, initiated by Russia, till this moment haven’t brought significant results, nor stopped the processes of post-soviet area disintegration. The transformation of Russia into an unconditional donor for its integrational partners gradually becomes the focus of Russian political class and invokes concerns of Russian electorate. The possibilities of Russian government within extension of integrational processes on the eve of the pre-electoral 2012 are reducing objectively.