Is Customs Union possible without Ukraine?

13/ 04/ 2006

MOSCOW. (RIA Novosti economic commentator Nina Kulikova.)

On April 14, Minsk will host a meeting of the High-Level Group for the
creation of the Common Economic Space (CES), which is expected to complete
coordination of document on the establishments of the Customs Union.

Ukraine has refused to join the entire set of documents, which arouses the
question whether the CES can exist without its participation.

The main idea of the 38 agreements the Group is to finalize is to create a
legal framework for setting up a Customs Union of the member states. All of
them - Belarus, Kazakhstan, Russia and Ukraine - have been working on them,
said Viktor Khristenko, Russian Industry and Energy Minister. However, Kiev
is so far willing to sign only 11 agreements, which goes against the concept
of adopting statutory documents as a package.

Nevertheless, the other three countries demonstrate their political will to
go on with the Common Economic Space project and intend to sign the entire
package of documents soon. "Russia, Kazakhstan, and Belarus will not wait
for Ukraine to decide to join the Space," announced Kazakh President
Nursultan Nazarbayev during his recent visit to Moscow. Russian President
Vladimir Putin confirmed this, when he said that in the near future the
three nations would sign the first package of 38 documents that would lie at
the foundation of the CES.

Moreover, Moscow seems intent to reverse the trend of delaying the process,
which has already taken more than two years. Recently Putin ordered the
Russian government to speed up the establishments of the CES, despite
Ukraine's unwillingness to sign the required documents. Obviously, the
process has long needed acceleration. An additional incentive must have been
the United States' artificial stalling of Russia's WTO accession, which the
Russian leader has repeatedly noted, says Igor Kirsanov, expert of the
Eurasia Legacy Foundation. This is why Moscow is interested in carrying out
alternative models of economic integration on post-Soviet territory.

The key idea of the Customs Union is to lower customs barriers in trade
between member states. Today's most likely scenario for the CES Customs
Union - without Ukraine - receives controversial assessments. On the one
hand, with fewer participants it will be easier for Belarus, Kazakhstan and
Russia to carry out their plans. On the other hand, as Dmitry Plekhanov from
the Institute of Complex Economic Studies points out, if the Customs Union
of three countries is formed, in the future they may lose Ukraine as a
potential CES member, especially if it joins the World Trade Organization.

Grigory Rapota, Secretary General of the Eurasian Economic Community, says
that Ukraine is in no hurry to join the Customs Union because it implies
certain obligations related to third countries. He, however, is positive
that integration at different speeds is quite acceptable for the CES.

The WTO talks of the CES member-countries present a core problem for their
joining the Customs Union. Anatoly Kinakh, Secretary of Ukraine's National
Security and Defense Council, says that Kiev is ready to go on with the
first stage, i.e. the establishments of a free trade zone within the CES
(signing the above-mentioned 11 documents) with minimal customs, tax and
other barriers. But he argues that the step towards deeper integration can
be taken only after all CES nations have joined the WTO.

At the same time, if the process of WTO accession is not linked with the
Customs Union talks, it may affect the CES prospects, Plekhanov says. It may
so happen that in the future, the parties will not be able to work out a
single customs tariff because of the difference of conditions on which they
will have agreed to join the WTO.

Kirsanov believes that after WTO accession Ukraine will withdraw from the
CES. The country's Orange leadership has in fact lost interest in the
organization, when it chose integration with Euro-Atlantic structures and
set the aim of joining the WTO ahead of Russia. However, before the WTO
accession, Kiev will retain its ambiguous position and delay signing the CES
documents, the expert maintains.

Even if the CES project goes on due to the political will of three nations
instead of four, they will still be in for complicated work to reconcile
contradicting interests and goals each of them pursues when opting for
integration. Kazakhstan, for example, is not satisfied with Russia's
pipeline and railway tariff policies, Kirsanov says. Russia, in its turn,
has questions to Belarus, which delays the creation of a joint venture on
the basis of Beltransgaz and earns huge profits from exports of cheap
Russian energy.

The main difficulties of the Customs Union may still be ahead, Plekhanov
warns. It will come true only after a single customs tariff is agreed upon
and an efficient system of control is set up to monitor its observance. The
example of the Russian-Belarussian Customs Union shows that the latter can
be difficult, he adds.

Earlier, Minister Khristenko said that talks on the entire package of CES
documents would be completed by the year-end. The current developments make
this timeframe seem questionable. Nevertheless, the CES structure is
gradually taking shape. If the negotiators overcome the existing
contradictions, all of the project's participants will reap the benefits of
the Customs Union.