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Interview by the Chairman of the EEC Board Victor Khristenko to Kazakhstanskaya Pravda Newspaper: “Decisions are made by the Commission on a collegial basis”

Interview by the Chairman of the EEC Board Victor Khristenko to Kazakhstanskaya Pravda Newspaper: “Decisions are made by the Commission on a collegial basis”

The Chairman of the Board of the Eurasian Economic Commission, Doctor of Economics Victor Khristenko, gave an exclusive interview to Kazakhstanskaya Pravda.

– Mr. Khristenko, what are the results of the first stage of the Commission’s work?

– In its new form, the Commission has been working for 9 months only, but already has achieved good results. Firstly, we established ourselves as an executive body. The Eurasian Economic Commission is unique in terms of both its status – we are a supranational authority; and scope of competences delegated to us – all customs and technical regulation, foreign trade, protective and other measures. We already employ more than 650 persons that are citizens of the three states: Russia, Kazakhstan and Belarus. The Board meets on a weekly basis and this year it has addressed approximately 300 issues.
In addition to quantitative characteristics, we should also point out to its qualitative component and the key events that has took place over this period.
Russia has become a WTO member. Much has changed over 18 years of negotiations. As a result, most decisions and agreements that were reached by Russia on the WTO track are implemented by the Commission within the entire Common Economic Space, taking into consideration the WTO requirements.
September saw the enactment of the new Common Customs Tariff that was adopted by the Commission and includes more than 11 thousand articles of goods, thus ensuring access to the market of the three states. In this sense, the Customs Union and the Common Economic Space, one may say, have received an international quality certificate, because the WTO regulations apply to all the CU member-states.
These are qualitative changes that will become more numerous. I mean we will become a more economically integrated structure, and will more and more comply with the rules applicable to the global market.
As regards the results for our states, they are also rather positive. The Customs Union member-states have been demonstrating a sufficiently steady GDP growth exceeding 4% for all the three states, with investments up by 8.3%.
Mutual trade between the states also shows a steady growth trend. For 9 months, it was up by 9.9%, while trade with third countries increased by 4.7% only. You see that mutual trade growth rate is 2 times higher. Even in the context of global trade slowdown.
It’s a positive factor, especially if we recall that the structure of mutual trade seems to be much more balanced and stable. CU foreign trade is dominated by mineral raw materials, i.e. oil and hydrocarbons, followed by metals, with machines and equipment, unfortunately, accounting for a small share only. In mutual trade, however, mineral raw materials account for approximately 40%, with 20% falling to machines and equipment. It is a very healthy structure.
Important is also the fact that new enterprises and new structures are being set up actively. Now, businesses choose where company incorporation will be more advantageous in terms of taxes, administrative pressure, etc. We see a good dynamics of new enterprises in Kazakhstan, which is higher than in Russia. Such competition between jurisdictions can spark jealousy in someone, but I feel satisfaction, because it will encourage us to implement best practices, find solutions that will move forward all of us by creating clearer and optimal business environment.

– Indeed, the press is abundant with messages that Russian companies now choose Kazakhstan as their place of registration. They offer better conditions. So, what is the situation with labour?

– On January 1, we started to deploy the Common Economic Space and fill it with contents. We need to achieve four freedoms of movement - goods and services, capital and labour. Free movement of labour and all related aspects from migration to employment and harmonization of associated legislation are very important. It is something that the people in our countries immediately face.
A labour migration trend can be seen today. This process is encouraged by lack of barriers. No special permits or employment quotas are required. However, this does not mean that we don’t have any problems when crossing the borders or that all issues have been resolved. We still have a state border with Kazakhstan, where one has to undergo passport control each time. I hope that this barrier eventually will be removed for the three states, since its removal is an obvious advantage for people. Labour will flow to locations where working conditions are better. I hope that opening wider mobility prospects will enable people to work, whether on a rotation basis or permanently, at various locations throughout the CU, where their skills are needed.

– Recently, at the Belarusian Investment Forum in Minsk you stated that the Eurasian Economic Commission (EEC) had 35 applications filed by countries to open negotiations on the establishment of free trade areas. Could you give some more details?

– Such applications are more numerous, we have already 36. Once, these were requests and wishes expressed to the Russian Federation, but since its accession to the WTO was a long process, much has changed. An integration alliance appeared. And a considerable portion of free trade area agreements, both in terms of their subject and regulation tools, passed to the supranational level and now they affect not only Russia, but all the three states.
More than 10 countries out of those 36 have already expressed their willingness to work with the trio. This, however, in no way means that all 36 applications will be satisfied. It’s only the starting point for searching mutual interests and benefits. Cooperation may be launched, if advantageous for all CES member-states. Currently, the levels of activity in various fields on this track differ. A free trade area with Vietnam is at the most advanced stage of consideration. Estimates suggest it can drive both trade volume and investments by the CU member-states in Vietnam. Here, investments are important, because not always trade can adequately satisfy all interests of economic cooperation. In addition to supplies of goods, we are also interested in having privileged terms for accessing certain investment assets, i.e. in facilitating capital flows.
Other active areas include the European Free Trade Association (Switzerland, Norway, Island, and Luxembourg). In general, the European direction is of utmost importance for us, and active work here will continue. The growing market of the Asia-Pacific Region (APR) is becoming more and more attractive. Loot at the statistical data for the last year and you will notice that our trade and economic activity in the ATR is growing. Currently, it accounts for about 40% of CU imports. Export is slightly above 20%. It is a considerable share of our foreign trade. However, the EU has dominated and still dominates our foreign trade. Of course, we should carefully consider establishing preferential treatment in these new areas of economic activity in the Asia-Pacific Region. We should bear in mind one more thing: not so long ago, in September, a revised free trade regime for the CIS states became effective. They are also our major trade partners. For example, let’s take Ukraine. Here, we don’t just sit doing nothing. In September, two memorandums of cooperation in the field of trade and technical regulation were signed with the Chairman of the Government Nikolay Azarov. The goal is to facilitate regular interaction in these crucial sectors. So, free trade regime as such will be a tool for further expansion of the CU's economic ties, when it brings real benefits to our three states.

– What about the accession of new countries to the CU…

– The situation around CU and CES expansion and increasing the number of members is as follows: we have an official application from the Kyrgyz Republic. An ad hoc working group was set up to address this issue. To put it straight, the process is complicated; it’s connected with studying all consequences for both the CU member-states and the candidate state. Tajikistan, as a full EurAsEC member, is also considering accession. As far as other countries are concerned, we have no official accession applications, but discussions are held in Moldova that, similarly to Ukraine and Armenia, has an observer status in the EurAsEC. The public opinion and some political forces seem to welcome such approximation. On our side, we are interested in a dialogue and in finding adequate forms of cooperation.

– On request of the Eurasian Development Bank, a public opinion survey was conducted in the CIS states regarding the integration of Belarus, Kazakhstan and Russia into the Customs Union, which exempted trade between the three states from duties. People in Kazakhstan have the most positive opinion: 80% of the respondents feel positive about the CU and CES. Nevertheless, there are skeptics in every state. Could you dispel all their doubts?

– As far as I remember, a rather positive assessment was expressed not only by the respondents from Kazakhstan, but also by those from Russia and Belarus. However, Kazakhstan had high rates, indeed. There are also different opinions, and thanks God they exist. The main thing is that people should be able to express their opinions, moods and even skepticism.
Over the last 5 decades, the world showed considerable, fantastic advantages of open market, especially for some countries and in particular for major corporations. However, the crisis of 2008 brought considerable and even global risks that affected not individual countries or corporations. These events encouraged all countries of the world to start searching an answer to the global risks. Inevitably, most of them faced the question in what alliance and in what way they should pursue their group-wide interests. It is in this way that every country makes its choice.

– Logically, united efforts make it easier to fight a crisis. However, the EU experience suggests it can also be otherwise...

– It’s a good question, but one should not deny that the EU is the most advanced form of integration in the world, which incorporates the achievements of not only the CES, but of the monetary union as well. In the process of integration of the three states, the European experience is not only interesting, but invaluable for us. We do follow this model to a certain extent. However, we try to avoid mistakes. What mistakes? I think that one of the main problems why Europe has faced its current difficulties is the question of what is more important – expansion or deeper integration.
I believe that the depth of integration, especially after certain milestones are achieved, is the key to the ability to resist crises and a key development driver. In 2003-2004, the EU opted not for depth, but for expansion, and almost doubled the number of EU members. This considerably complicated the decision making process, in particular with respect to not so popular decisions. Having a common currency and many members, it’s much more difficult to pursue reforms. To a certain extent, the trend of that time played a low-down trick on them. Their economy was developing well, and there were no signs of the crisis of 2008. Everything seemed possible with that trend. Now, however, Europe has to take decisive steps to maintain their structure, since the reverse process of disintegration is difficult even to imagine. The negative consequences can be disastrous.

– The experience of the European countries teaches that it’s important to be able to agree when resolving emerging controversies. How are controversies resolved in the CU?

– Almost no decisions are made automatically. The decision making process is not an easy one. Decisions always pass through the Procrustean bed of approvals by all stakeholders. We have standing advisory committees (in all areas of our work) that include representatives of the three governments, where business is invited to find acceptable solutions to the key issues, such as technical standards, regulations, duty rates, access... There is a great deal of issues connected with it. At the Board meetings, we comprehensively discuss all this, make decisions and assume responsibility for them. It’s absolutely normal, since it proves that the issues we discuss and the decisions we make are important.

– What activities does your Commission have ahead?

– Year 2012 is coming to an end. The Supreme Eurasian Economic Council will meet in December at the level of the heads of states. The Presidents will hear the report on the progress of integration in 2012 and will address a number of important issues involving international positioning, including free trade in the CIS region, as well as with Vietnam.

Issues that are more pragmatic for us will also be considered, in particular, budget for 2013. Our short-term actions will also be discussed. There is a great deal of work to do. It is even scary a bit. Indeed, during 2013 and the first half of 2014 we are to finalize the Agreement on the Eurasian Economic Union. This task was assigned to us by the Presidents. The Eurasian Economic Union, first of all, will formalize everything connected with the implementation of all agreements within the CU and CES. This work will require adoption of approximately 60 international agreements that will develop the CES regulations. Importantly, the core areas are clear and necessary in everyday life.
For example, protection of competition. Hence, nondiscriminatory positioning in the market of two or more states inside the CU and CES. How should compliance be monitored? The Commission should be responsible for this. The entire huge competition policy package shall be enacted by July 1 next year. This regulation is totally necessary for the life of business, so that entrepreneurs could benefit to the fullest extent from the common market. This scope of tasks for the next year also includes an agreement on coordination of monetary and macroeconomic policy, which is also significant for business, since even small deviations in these areas often result in significant distortions of the market conditions.
Indeed, we cannot do without harmonized policies in the key areas of economy. Establishing a common market and common conditions for business requires that. Free movement of goods and volume of trade in goods are very important. This freedom, however, is: a) sensitive and depends on the current market situation; b) more short-term in its nature than capital that is always a long-term thing.
It is achieving the four freedoms and moving towards harmonized sectoral policies that ensure the new quality and the depth level enabling us to move to our goal of creating the Eurasian Economic Union.
The pace, nature and certain peculiarities of this movement are a thing to be discussed by the presidents. They are able not only to understand the current situation, formulate goals and objectives, but also give a clear signal to the national governments in order to achieve the goals and objectives within the deadlines.
The position of the heads of states is of principal importance for a project such as launching the Eurasian Economic Union. A priori, they play a definitive role. At the current stage of this project, the presidents play not only a role of the bearers of political will, but also those of the main law maker. It is because interstate agreements submitted to signature to the presidents, pass ratification at the national parliaments and become a basic legal framework for the integration alliance. Later, we, similarly to the EU, may have a Eurasian Parliament, a law-making institution of the Eurasian integration project. However, we are still at the stage of formation. So, the Supreme Eurasian Economic Council has a huge importance here.​