Having it Both Ways - Russia is Saying Yes to Both the WTO and the Customs Union

By Amanda Lahan, Account Manager, The PBN Company, Washington DC

After a summer of uncertainty, Russia’s World Trade Organization (WTO) accession process seems to be back on track - but the Russian government seems also be looking to get the best of both worlds. While it is voicing support for a timely accession to the WTO, it still supports the creation of a Customs Union with Belarus and Kazakhstan and simultaneous WTO entry for all three countries, despite the fact that Kazakhstan and Belarus are far behind Russia in terms of their accession negotiations.

In mid-September Prime Minister Putin again voiced his support for the three countries joining the WTO as a group, while at the same time asking the US to drop restrictions on trade with Russia.  Several days later, First Deputy Prime Minister Igor Shuvalov stated that Russia aimed to finish its WTO negotiations in 2010, and that WTO negotiations for Kazakhstan and Belarus should be conducted simultaneously. However, he also cautioned that the leaders of the three countries could change their plans if Kazakhstan and Belarus slowed Russia’s accession process. Shuvalov then reiterated his support for the countries’ accession as a group at a meeting of Customs Union members in Almaty on September 25th.

But although government leaders are apparently trying to pursue both routes simultaneously, not all of Russia’s bureaucracy is convinced. The Russian Ministry of Finance and the Federal Customs Service (FCS) have both come out with concerns about the implications of the Customs Union, particularly as it would affect excise tax distribution. Earlier this month, Vladimir Ivin, head of the analytical department at FCS, was quoted by Vedomosti as saying that the lack of mechanisms for distributing export tariffs is hampering the creation of the Customs Union. In Russia there are hundreds of export tariffs, while there are practically none in Belarus or Kazakhstan. How the tariffs will be collected and redistributed has not yet been clarified, and Ivin is concerned that this lack of clarity could threaten both the interests of Russian producers and the coffers of the FCS.

Russia’s Ministry of Finance is also concerned. Ilya Trunin, Director of the Department for Tax and Customs Policy, was quoted as saying that “the Ministry is carefully studying this question [of the Customs Union] - any losses to the budget would be highly undesirable.” Other officials at the Finance Ministry claim that the export tariff issue will be resolved during the second phase of the Union’s creation, sometime in 2010.

In summary, negotiations on the Customs Union are going forward and it seems that the Russian government, especially Putin and his team, still support Russia, Belarus and Kazakhstan acceding to the WTO as a group. It also appears, however, that Russia wants to leave itself an avenue to go it alone if accession as a Customs Union proves impractical. Crucially, getting the Russian entire government - and the associated bureaucracies - to support the Union will mean proving that there will be concrete financial benefits, and that it is not just an attempt to exert Russia’s influence in the region.

Possibly related posts:

1. The Customs Union Officially Exists
2. Customs Union Update: Russia’s Average Tariff Burden Could Fall Under New Union
3. Treading Softly: Kazakhstan Weighs Up the Customs Union
4. Policy Matters: The New Tripartite Customs Union and the Implications for Trade and Geopolitics
5. What a Difference a Day Makes: Russia’s WTO Accession Hits Surprise New Hurdle