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2014 Media Kit

Russia dominates neighbours in new customs union

By: | at 08:00 PM | International Trade  

Russia’s partners in a new customs union, Kazakhstan and Belarus, are getting cold feet about a pact designed to boost trade between the trio of ex-Soviet states and add clout to their WTO accession talks.

The move to create a trade bloc with annual turnover in excess of $600 billion has met growing discontent from officials and business leaders in Kazakhstan and Belarus, who say their interests are being neglected.

“This is going to hit our wallets,” said Talgat Akuov, head of Kazakhstan’s Independent Association of Entrepreneurs.

Russia, the largest economy outside the 153-member World Trade Organization, announced last June that it would pursue membership only as part of the customs union with Belarus and Kazakhstan, effectively re-setting 16 years of accession talks.

Kazakhstan, the world’s largest uranium miner, and Belarus, an industrialized nation bordering the European Union, were originally keen to join the union to secure benefits such as cheap energy from Russia, the world’s largest gas exporter.

But Belarus, smarting from a New Year dispute with Russia over crude oil duties, has cast doubt over the union only months after its inauguration. President Alexander Lukashenko said Russia-backed exceptions to trade jeopardised its existence.

“It is destined to fail if we already introduce certain exceptions,” Lukashenko said on March 11.

Russia and its partners agreed from Jan. 1 to drop most duties on mutual trade and move toward harmonising customs rules. From July 1, they are due to adopt a common external tariff and begin redistribution of the duties they collect.

Some analysts in Russia say the benefits, such as bigger markets for Kazakh metals and Belarussian consumer goods and foodstuffs, more than justify the cost to the smaller partners.

“Kazakhstan and Belarus benefit from the creation of the customs union because the Russian market opens up for them,” said Moscow-based Deutsche Bank analyst Yaroslav Lissovolik.

But others say Russia is the clear winner, gaining new markets and reinforcing Soviet-era ties at a time when its long-standing allies are seeking alliances elsewhere.

In Kazakhstan, business executives and opposition politicians are threatening the government with public protests, saying the Central Asian country is losing from the agreement—a view shared by some Western economists.

Ralph De Haas and Alex Plekhanov, economists at the European Bank for Reconstruction and Development (EBRD), say Russian car makers, metal suppliers and dairy firms were among those most likely to win from the new trade deal.

“(They) face less competition in Kazakhstan and Belarus because producers from third countries (such as China and southeast Asia) have been put at a disadvantage,” the two wrote on the EBRD official blog website last month.

Cheaper Energy

Belarus has joined the union largely to save on Russian energy imports, which cost it about $10 billion a year. Kazakhstan hopes to boost exports of commodities such as metals, chemicals and coal to Russia.

Russia, however, will this year send only 6.3 million tonnes of duty-free oil to Belarus, enough for domestic consumption. Minsk must pay full duties on the additional 14 million tonnes or more it will receive for refining and re-export.

The International Monetary Fund estimates Belarus will, in fact, pay $2 billion more for Russian oil this year. The issue has further strained relations between Moscow and Minsk that had been deteriorating over the last few years.

“The jury is probably still out on the implications of the union for Belarus,” Plekhanov told Reuters.

“Belarus’s primary interest is access to Russian energy resources at Russian domestic market, or otherwise discounted, prices. The agreement on whether this may be possible once the common customs area is formed has not been reached yet.”

For Kazakhstan, the new zone has so far brought only higher prices. Central Asia’s biggest economy has raised traditionally low import duties to match Russia, which uses high duties