FOCUS

Borders Be Gone

The Customs Union entered into force between Kazakhstan, Russia, and Belarus in 2010, marking a milestone in Eurasian integration in the post-Soviet period.

In an age of rapidly coalescing trading blocs, it is little wonder that Kazakhstan has been looking to secure its own place within the international arena. Following the signing of a Customs Union with Russia and Belarus, Kazakhstan is hoping that the new trading bloc will play to its competitive advantages. Not only will the Customs Union enhance trade and investment among its member states, it is also expected to expand in the future and lead to increased integration across the Eurasian landmass.

The Customs Union between Russia, Kazakhstan, and Belarus was set up in three stages. In 2009, the current member states reached an agreement on a unified customs tariff and endorsed a schedule for creating a unified customs territory. Although the three countries agreed to apply unified import and export duties with multiple exceptions in January 2010, the Customs Union started working fully with the adoption of the Customs Code in July 2010 and the new procedure for the computation and distribution of the import customs duty. Since September 2010, the three union members collect customs duties into a single bank account and redistribute the money. Russia gets 87.97% of the funds, while Kazakhstan and Belarus get 7.33% and 4.7%, respectively. Finally, in July 2011 the last customs offices on the inner borders of the member states were abolished, and unified forms and instructions on declaring goods came into force.

ADVANTAGES

The Customs Union creates a common market with a population of nearly 170 million—approximately 60% of the former Soviet Union—and a total GDP of $2 trillion. Kazakhstan gains access to the markets of Russia and Belarus, which represent a total population more than 10 times that of Kazakhstan. Furthermore, the elimination of customs duties among the partners is expected to increase their respective GDP by 15% by 2015. That translates into an additional $400 billion for Russia and an additional $16 billion for Kazakhstan and Belarus.

In this union of three, Kazakhstan exports minerals such as ore, metallurgical products, and chemicals to Russia, while importing other minerals, chemicals, metals, and machinery. Belarus imports Russian oil, gas, and metals as well as machinery and sells trucks, car parts, tires, dairy products, poultry, and meat to Russia. Russia already accounts for 6.9% of Kazakhstan’s exports and 28.5% of imports. With opportunities for domestic exporters created, Kazakhstan is set to be a more attractive destination for FDI, especially from third-party states.

Although bilateral trade between Kazakhstan and Belarus seems negligible, the Customs Union creates great opportunities for both countries as far as moving raw materials across borders and investments in oil refining are concerned. Kazakhstan will be able to export its oil to Belarus, from where it gains access to European markets after being refined in Belarusian refineries. Furthermore, Kazakhstan and Russia, as two of the world’s biggest oil and gas players, gain as partners the opportunity to carve out commanding positions in the global energy and grain markets through the free-trade zone.

THE FUTURE

The next step in Eurasian integration is evolving the Customs Union into a more ambitious common market. Russia, Kazakhstan, and Belarus have already approved documents to establish a “common economic space” in January 2012, which will create a single market for the free movement of goods, capital, investment, and labor. Integration is also expected to lead to the eventual unification of railway rates and natural gas prices and possible agreements on agricultural subsidies and inflation rate boundaries. The harmonization of the legal systems as per the settlement of trade will be supported by the establishment of a commercial court based in Minsk, Belarus. Lastly, a cross-border currency similar to the euro would give the Customs Union more weight on international financial markets. This idea is already being discussed among member states and enjoys widespread support.

Provided the ambitious agenda goes ahead, it is no surprise that other CIS countries show interest in either joining the Customs Union or establishing closer cooperation. Kyrgyzstan has approved a plan to join a Eurasian customs union and common economic space and set up an interagency commission to open negotiations on the country’s admission to the Customs Union, which accounts for almost half of Kyrgyzstan’s foreign trade. Tajikistani officials have also expressed favor for the establishment of the Customs Union and that it will follow Kyrgyzstan in applying. Ukraine, on the other hand, has expressed interest in crafting its relations with the Customs Union in a special partnership/cooperation format.