Customs union is the form of economic integration which is in act today. Nowadays the integration and economic globalization is taking place in the world. Customs union is a trade agreement between the group of countries according to which there is a set of tariffs to the countries which is not in union while there is a free trade zone between the countries signed the agreement. Kazakhstan, Russia and Belarus have formed the Customs union which was launched on January 1, 2010. But the agreement between three countries was signed much earlier on 6 October, 2007, Dushanbe.
One of the members of this union is the Republic of Kazakhstan. Kazakhstan has different kinds of relations with Russia and Belarus from the time it became independent.
In the paper the questions about how customs union was launched (brief background), its perspectives and future, problems which three countries faces due to the membership in it will be discussed.
An agreement of forming the Customs union was signed on august 16, 2006. It was decided that there would be three countries which form the union at first then other members of Euro Asian Economic Community (EurAsEC) enter and would form single economic space.
According to the Protocol about changes implementing which was taken on October 6, 2007 in the Agreement of establishment (institution) of Euro Asian Economic Community from October 10, 2000 the highest organ (agency) of the Customs union is Inter Governmental Council. Inter Governmental Council makes decision about the formation and functioning of the Customs Union. Execution of the decisions made by the Council, realization of agreements of the formation of Union, preparation of corresponding recommendations to the Council is the responsibility of Commission of the Customs Union (which was launched by the Agreement of Establishment of the Commission of Customs Union on October 6, 2007, Dushanbe). The Commission is over-national agency of the EurAsEC because this document foresees transferring the part of the power of governmental departments of the members. The Commission consist of deputies of the head of Governments or members of the Government of the countries who have appropriate power.
Intergovernmental Council made the decision to establish working department of the Commission – Secretariat which provides the organization of work and info-technical provision of the Commission and the Council.
Customs Code is worked according to the Kyoto Convention, The Code was planned by Kazakhstan because only this country ratified documents of the Convention. The project of the Customs Code was approved on the meeting of Integration Committee of EurAsEC on September 25, 2009.
Till this time member-countries have reached enormous results in direction of formation of the Customs Union. First, appropriate legal base was formed. Second, the single tariff was established. Third, the Customs Code came into force. Fourth, customs control is replaced on external borders of the Union.
It is obvious that world economy could cope with the financial crisis by implementing new technologies and uniting because union of several countries is stronger than one country itself to solve the problem. Thus establishing Customs Union – is large integration break-through on the territory of the Former Soviet Union. Our countries have a good example to follow (European Union).
Every new-created institution has its future and perspective so does the Customs union. Establishment of the Customs union is step towards the single economic space. But before forming the single economic space there is one stage – a single market.
Forming of the single market assumes liquidation of the barriers not only trade but also moving of man power and capital between the countries. But establishing of zone of the free movement of goods, services and capital is not enough to provide the single market. Unification of national legislation, technical and sanitary standards, carrying out of coordinated industrial, credit and financial policies has a great value. Integration of the markets inevitably generates integration of economic policy; the integral economic organism is formed. This form of integration is called economic union functioning of which requires creation of supranational administrative structures.
After the establishment of the zone of free trade the goods turnover between the member-countries of EurAsEC increased, so after analysis Kazakhstan, Belarus and Russia decided to form the Customs Union. It is mentioned before that the Customs union is further step to form single economic space, so also it is planned to introduce single regional currency. It is actual that Russian ruble become such kind of the currency.
Another plan is to enter the World Trade Organization as a bloc not as single country. According to the opinion of number of the experts the formation of the Customs Union should be achieved according to the WTO’s legal basis. In order to solve the problem of entering WTO negotiable group of representatives of three countries is formed. This group is developing approaches to conduct negotiations of the entering of the Customs Union in the World trade organization.
Also Kyrgyz Republic is planning to enter the union. After a session of the EurAsEC intergovernmental council Roza Otumbaeva the President of Kyrgyzstan declared that working group which is studying issues of joining the Customs Union has been formed. Tajik President Emomali Rakhmon also declared his country's interest in entering the union.
Every country is planning to get benefits from membership in the union. One of the first benefits which Kazakhstan will get is that goods imported to Kazakhstan from Russia and Belarus will be much more cheaper. Also restriction on import and export of goods will become more, for example the bussinessmans won’t have problems with duty and other kinds of payments. The products of the Kazakhstani producers will be more competitive at the markets of Russia and Belarus because there is no necessity of customs clearance for goods and arranging declaration for them.
It is also important that the customs tariffs on imported goods from the third countries will rise with the introduction of free movement of goods and services. It means that Kazakhstani producers will benefit because of high tariffs on imported goods. There will be not so much competitors with low product cost because high tariffs equalize the cost of Kazakhstani and foreign producers.
According to Gulnur Rakhmatulina chief researcher of KazIIS, after the Customs Union will fully work the number of consumers of Kazakhstani goods increase from 16 million to 10 times. Also the number of foreign consumers increases because Kazakhstan is able to export products to Europeen markets via Russia and Belarus.
So there are a lot of perspectives to the Customs union as whole and to Kazakhstan. The union extends our borders because of expansion of domestic market of 165 million people. All these factors inevitable will lead to the economic growth of our country.
There are some problems as well as perspectives when new institutions are established. So the Customs union between Kazakhstan, Belarus and Russia has its own problems. They are:
-Retention of big differences in national legislations of member countries. This circumstance cause troubles to working out single mechanism of customs administrating. For example only one member of the Union has ratified Kyoto convention and signed general agreement and rules of application. As a fact of this, international norms of customs administrating and some procedures of optimization of the customs control are implemented in Kazakhstan. Russia and Belarus have signed only general agreement of this convention. So differences between some legislative norms may cause some difficulties to the process of working out the norms of administrating. For example, Kazakhstan can loss some privileges according to Kyoto convention when transiting goods via Belarus and Russia and have an opportunity to use them only when transiting via territory of third countries. The mechanism of insurance of the customs risk is implemented in Kazakhstan. The cost of insurance policy comprises 0.2 – 0.3 (from the sum of customs payments). This mechanism doesn’t exist in Russia and Belarus and the cost of insurance policy – from 3 to 10 %. It is planned to implement single insurance rate so this rate is going to be higher to Kazakhstani producers than now. In spite this fact, tax administrating also differs in the Customs Union countries. Value added tax (VAT) comprises 12% in Kazakhstan and 18 in Russia and Belarus.
-Absence of compensating mechanism during the implementation of the single tariffs. The implementation of the single tariffs identifies increase of customs rate in trade with third countries for Kazakhstan. As a fact customs tariffs in Kazakhstan are less than Russian and Belarusian. So it is mean that an increase of customs tariff leads to the growth of imported goods and decrease of turnover between third countries and Kazakhstan on initial stage. A fall of turnover with third countries may lead to the decrease of customs payments in the budget. This is a big problem because customs collections comprise 30% of the budget. Considering this fact the Republic should work out compensating mechanism adapting the economies of members to the conditions of acting of the Customs Union.
-Lack of co-ordination in use of the certificates of products’ origin between sides. This problem is actual for Kazakhstan and Russia. Because they have signed agreement of acknowledge of the certificates of products’ origin between two countries. In addition to this when the product moves from Kazakhstan to Russia, the transporter should change Kazakhstani certificate to Russian one and vice versa. When the good comes from Russia the transporter should receive Kazakhstani certificate. Moreover the transporter should pay twice: first at one country then at another one.
-Absence of standardizing norms in realization of external trade policy. There are various trade regimes in three countries with external partners. There are 120 basic trade agreements in Russia, 50 in Kazakhstan and 40 in Belarus, but obligations of these agreements vary in many parts. That is why unification of trade regimes with third countries is important.
It was a list of problems which the Union faces. But to this moment leaders and appropriate departments are solving them. Every union like that has problems at initial stage but now they have been solved and some unions become prosperous. Problems exist because of the fact that each member country couldn’t have similar legislations, similar rates and agreements. Each country has its own external policy that’s why there are some problems.
Of course the Customs union is important step towards economic integration, strengthening of economic communications, forming of modern economic structure. But on other side there are some problems that union may cause.
The standard of living is different in three countries. I think that in Belarus and Kazakhstan there is not a big difference but comparing with Russia the standard of living in Kazakhstan is lower. For example, salaries in Russia are higher than in Kazakhstan. There is a big difference in cost of different kinds of goods. As was mentioned in main part various rates is higher in two countries comparing to Kazakhstan. It is mean that Kazakhstan obliged to increase the cost of goods and rates in order the prices in three countries become equal. It is the fact that changes in prices are going towards increase. But it is unlikely that with the growth in price level the salaries are going to be increased.
Of course with launching of the Customs union number of potential consumers of Kazakhstani producers expands. But it is not obvious that the increased number of consumers are interested in buying our products. Because of the fact that they don not know our produser’s products and most of the people has the habbit to use the goods which are “tested by time”, which they can rely on.
Another disadvantage is civil problems. Russian Federation is the biggest country in the world and there are a lof of people. With launching of the Customs union there are no boarder control so everyone who wants may move from country to country. The Kazakhstan i can say is “quite” coutry but there are many criminal, rasist and other kinds of groups in Russia. So it may cause problems to the tranquillity of Kazakhstani population.
Actually the Customs union is more beneficial to Russia because it benefits more than two other countries. As Nursultan Nazarbayev assumes Russia gets 400 billions of dollars and Kazakhstan and Belarus more than 16 billions of dollars. Of course it is an enormous break-through on the territory of EurAsEC and it identifies the level of development of three countries, opens new opportunities. But will it be so beneficial to people as well as to the Kazakhstani government, will people benefit from this union. This is a big question because every country consists of people. And the Government should think about its nation at first.
- The Almaty expat cite. http://expat.nursat.kz/Geography of Kazakhstan, cited 2010
- ITAR-TASS. “The Customs Union of Russia, Belarus and Kazakhstan.” July 5, 2010
- Ministry of foreign affairs of the Republic of Kazakhstan. http://portal.mfa.kz cited 6 May 2010
- National Agency Khabar. “Customs Union of Kazakhstan, Russia and Belarus as a dress rehearsal before joining the ”
- Official site of Customs union Commission. http://www.tsouz.ru, cited 6 October 2007
- “Customs union of Russia, Belarus and Kazakhstan.” July 5, 2011
- Sultanov, B. The Customs Union of Belarus, Kazakhstan and Russia: condition, perspectives and problems. Almaty: KazISS under the President of the Republic of Kazakhstan, 2009
- The voice of Russia. “Russia, Belarus, Kazakhstan to form Customs Union.” December 25, 2009
- The voice of Russia. “Russia, Kazakhstan, Belarus launch Customs Union on January 1, 2010.” January 1, 2010