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Analysis & Opinion
14.07.11 Touting A Mini-WTO
By Tai Adelaja

Prime Minister Vladimir Putin was feeling optimistic and poised for even greater leaps on Tuesday, as he announced the establishment of the Eurasian Economic Union, which could integrate the economies of Russia, Belarus and Kazakhstan by 2013. “As early as next year we are hoping to sign a declaration about the formation of the Eurasian Economic Union, which can and must start operating as early as 2013,” Putin told journalists on the sidelines of the Customs Union Business Forum on Tuesday.

Conceived as a quasi-World Trade Organization (WTO), the Eurasian Economic Union is expected to ensure the free movement of goods, services, capital and labor among member states. Putin said that a single common economic space will not only bring the former Soviet states closer, but it could serve as a buffer against global economic crises and a safe haven for potential investors. The new Eurasian union represents the latest stage of integration in the economies of Russia, Belarus and Kazakhstan, which are already locked in a customs union that became fully operational on July 1, 2011. Putin said that both the principles and rules governing the WTO were taken into account during the formation of the Customs Union to enable businesses from WTO-member states to work in a clear and predictable environment.

But creating a common economic union does not mean that Russia will jettison its goal to join the WTO, and Russia, like Belarus and Kazakhstan, will continue its attempts to join the trade body, the Russian prime minister said. “But we don't intend to accelerate the process and we would not compromise our national interests in doing so,” Putin commented. Russia applied to join the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), in June of 1993, and its $1.5 trillion economy is by far the largest economy still outside the 153-member organization.

President Dmitry Medvedev said last month there was a “very high chance” that Russia would become a WTO member in 2011, even as he complained about delays in negotiations. However, Russia's Economic Development Minister Elvira Nabiullina said last month that Russian accession into the WTO could be delayed by several years if there was no agreement on key issues by the end of July this year. Reuters cited American officials last month as saying that elections in Russia and the United States would inevitably stall the Russian accession process if there was no conclusive agreement by the second half of 2011.

The Customs Union that binds Russia, Belarus and Kazakhstan came into force on January 1, 2010, but a raft of regulations that govern its operations only became effective on July 1 2010. The trio took further practical steps toward integration at the beginning of July this year by abolishing customs controls on the union’s internal borders and moving customs control of goods and vehicles crossing their territories to what have now become the union’s external borders. It is widely expected that the creation of a common economic space between the three countries may give private businesses in Russia, Belarus and Kazakhstan a fillip. The three countries, which have some of the best economic potential in the former Soviet Union, could see their combined economy improve substantially due to the removal of customs restrictions. About 60 percent of people living in the former Soviet Union are now residents of the Customs Union.

The latest stage of economic integration has also afforded the Russian prime minister a chance to realize his long-held ambition of bringing together former Soviet states under the tutelage of Moscow. Removing the customs checkpoints “is not just a technical formality,” Putin told his counterparts from Belarus and Kazakhstan on Tuesday. “For the first time since the collapse of the Soviet Union, a step has been taken to restore economic ties within the post-Soviet space,” Putin said. “By removing barriers that hamper bilateral trade, a growing and capacious common market with 165 million potential customers has been created. These are good conditions for businesses from the three countries and other states. The important thing is to have predictable and stable rules of the game for all the main economic actors.”

However, despite the huge benefits derived from the freedom of movement and trade within the customs area, there is a big fly in the ointment. Starting July 1, 2011, all three union members have started to enforce unified customs duties and taxes on transport vehicles imported by individuals. This means that prices of imported cars are expected to rise in Belarus and Kazakhstan – the two countries that had enjoyed lower duties on imported cars before July 1.

Bureaucrats in each of the three member states must also gear themselves up to live in a competitive environment, Putin told the conference. In an apparent swipe at the European Union, Putin said the planned Eurasian Economic Union “will not replace national bureaucracy with supranational bureaucracy,” stressing that while removing internal borders, member countries should not create obstacles that will prevent integration into the global economy. “Business will only select a country with the best conditions and we're already anxiously reviewing a few things and considering how to create better conditions so that business will choose Russia,” Putin said.

The creation of more favorable economic conditions in Belarus and Kazakhstan could lead to Russian firms wanting to move their headquarters to these countries, Putin said. “I do not rule out that we will face a real threat that some companies will be re-registered in Belarus or Kazakhstan. We are perfectly aware of that,” Interfax quoted Putin as saying. The Russian government will therefore try to create competitive conditions to attract business to Russia, he said. This will already be the fourth stage of integration of Russia, Belarus and Kazakhstan, the prime minister said. “We have every reason to believe that the Eurasian Economic Union will start working in 2013,” he said.
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