Membership in the Customs Union has not led to a significant growth in trade turnover for its three member nations, but has caused a number of adverse side effects, such as an increase in drug trafficking and inflation for basic goods.
These are some of the
findings of the Ukrainian Da Vinci Analytical Group, published in a
special report that was released in Kyiv earlier this week. The group
is a commercial organization that specializes in consulting,
intelligence and analytical services, and is a member of the Reuters
consensus pool for Ukraine.
The report was
based on open sources such as statements of officials from members of
the Customs Union, which includes Russia, Kazakhstan and Belarus.
Anatolii Baronin,
head of Da Vinci AG, said “our
evaluations were minimal and only dealt with comparisons.” Baronin
said the company also analyzed non-public sources, but they were not
included in the report unless they could be cross-referenced in open
sources.
The report’s findings
could give ammunition to those groups in Ukraine who are arguing
against rapprochement with the Customs Union and in favor of closer
ties with Europe. The union was created in 2007, and Ukraine has so
far resisted pressure to join it. This week, Prime Minister Mykola
Azarov said the nation would like to receive observer status in the
organization to be able to keep informed about its direction.
The Customs Union was
designed to help encourage trade between its member nations through
removal of customs duties and other discriminatory regulations and
payments, but there are signs that it’s not working as well as
expected. Opposition in Kazakhstan has started a move towards a
referendum on exiting the union.
Da Vinci AG’s report found
that the growth of trade within the Customs Union are much lower than
expected, which is partially due to the fact that the member nations
have few commodities on offer for each other.
Although internal trade
within the Customs Union grew by 29 percent in 2010, and 33 percent
in 2011, the growth slowed down to 8.7 percent last year, reaching
$68.5 billion, according to the report. By comparison, Ukraine’s
turnover with Russia stands at $65 billion, according to the Cabinet
information.
“The low trade turnover
within the Customs Union encourage trade wards between its members
and external partners,” the report says. Also, protectionism might
slow down modernization of the economies in Customs Union.
Open borders within the
Customs Union have encouraged drug trafficking, particularly of
cannabis from Kazakhstan and opiates from Afghanistan. Russia has
suffered particularly badly. Da Vinci AG predicts that if Kyrgyzstan
joins the Customs Union in the future, the drug problem will get
even worse.
Another side effect of
open borders is an increase of internal migration among the member
nations, which has led to a surge in Belarus of “criminal activity
of natives of the Caucasus republics.”
“In case of
intensification of integration, this trend can lead to a rise of
nationalistic moods in Belarus and the European part of Russia,”
the report concludes.
Also, the system of
regulations in the Customs Union remains non-transparent. Belarus has
suffered from it because Russia limited supplies of oil to its
smaller neighbor, arguing that it had no transport available.
Kazakhstan fell victim to it because extra taxes that resulted from
these regulations hiked transportation costs and thus prices for
basic goods with imported components.
At the same time, because
of open customs borders, the member nations are losing control over
the trade turnover. “Representatives of government structure and
business are pointing at impossibility of quality control over the
goods moving within the Customs Union,” the report says.
Despite the main goal of
the union to unify trade conditions, the conditions for business
development remain varied for the three member nations. National
governments are discriminating against non-national producers and
service providers, particularly in the state procurement sector.
On top of that, the
reports quotes Russian authorities as claiming that half of the trade
turnover within the Customs Union remains in the shadow, and says
that simplification of customs procedures have led to a growth in
contraband. Moreover, “according to evaluations of the
representatives of the Russian side, statistics might be deliberately
skewed at the state level by the customs services of Belarus and
Kazakhstan.”
Da Vinci AG concludes that
Russia might come out with an initiative in the mid-term to create
unified external borders to combat contraband. “For that, the
Russian Federation might initiate creation of up to 10 main customs
outposts, where Russian customs officers will be present. This
initiative, in our opinion, will cause a negative reaction in Minsk
and Astana,” the report says.
Membership in Customs
Union has also caused disbalances in foreign trade. For example, the
share of Kazakh exports to other member countries of the Customs
Union has been going down. In 2007, its exports to Russia accounted
for 10 percent of foreign trade, and by 2011 the number was 8.7
percent. At the same time, Russian imports grew.
Membership in the Customs
Union has not helped diversify its economies, but caused a surge in
prices for some types of goods. Raw materials and heavy industry
remain the main export commodities, while prices for consumer goods
in Kazakhstan have become so expensive that in some cases the
government has had to step in to fix the prices for the population
whose purchasing power is going down.
Kyiv Post editor Katya
Gorchinskaya can be reached at gorchinskaya@kyivpost.com.
