The Customs Union Officially Exists

By Amanda Lahan, The PBN Company, Washington, DC

The Customs Union between Russia, Belarus and Kazakhstan has been officially established. The leaders of the three countries signed a formal agreement creating a unified customs union at a November 27 meeting of the Eurasian Economic Community (EurAsEC) in Minsk. A unified system of external tariffs will be put in place by January 1, 2010, while the unified Customs Code, still in the draft stage, will take effect on July 1, 2010.

Approximately 92% of the new tariffs are identical to Russia’s existing tariff system, meaning that Russia won’t have to change much. Considering that Russia has a larger number of tariffs than either Belarus or Kazakhstan, these two countries will have to increase their duties on some goods or put brand new duties into place. Kazakhstan alone will have to raise tariffs on more than 5,000 goods. Once the tariffs are in place, any increase or decrease will have to be negotiated by the governments of all three countries, making any changes a complicated process.

Other tariffs are yet to be determined. Russia currently has much higher import duties on cars - especially used cars - than Belarus or Kazakhstan, and is concerned that lowering these duties will result in a flood of imported used cars from these two countries, especially Belarus. While Russia has export duties on oil in place, Kazakhstan does not. Both of these thorny issues are not expected to be resolved any time soon.

While customs controls between Russia and Belarus are scheduled for removal on July 1, 2010, customs posts between Russia and Kazakhstan will remain until July 1, 2011 due to security concerns along Kazakhstan’s porous southern borders. Kazakh officials have proposed eliminating customs controls between the two countries a year earlier, simultaneous with the change on the Russia-Belarus border. The Russians have agreed to consider their proposal, but as of last Friday’s signing, the plan to remove the borders in 2011 remained in place.

Questions about Russia’s World Trade Organization (WTO) accession remain. On November 18, President Dmitry Medvedev said that Russia remains committed to joining the WTO and wants to complete membership talks as quickly as possible - alone or with trade partners Belarus and Kazakhstan. Undoubtedly, however, the creation of the Customs Union will decelerate the accession process.

As noted above, the fact that vast majority of the new tariff structure reflects existing tariffs, Russia will be required to change some of its customs duties, which may mean a renegotiation of some agreements with WTO members. Since relatively few of its tariffs will change, it seems unlikely that Russia will have to renegotiate all of its WTO agreements, as this would mean starting the accession process all over - an option no one advocates. However, it is possible that Russia may have to revise some of its agreements, and a timetable for this is nowhere in sight.

So, while it seems that Russia fully intends to enter the WTO, when it will actually happen is still up in the air.

Possibly related posts:

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