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Interview by the EC Minister for Trade Andrei Slepnyov to Interfax News Agency: “The New Eurasian Economic Union will not be a simple sum of today’s legal framework and agreements reached”

Interview by the EC Minister for Trade Andrei Slepnyov to Interfax News Agency: “The New Eurasian Economic Union will not be a simple sum of today’s legal framework and agreements reached”

12/25/2012

The first year of operation of the new integration alliance of the Customs Union of Russia, Belarus and Kazakhstan – the Common Economic Space – is coming to its end. The supranational regulatory authority, the Eurasian Economic Commission, is working actively, with more new functions delegated to it by the national authorities, and during the next two years, it will have to lay down the foundation for the future Eurasian Economic Space. In particular, during this part of the year the Commission revised the Common Customs Tariff to align it with Russia’s commitments to the WTO, conducted a special protective investigation in relation to import of grain combines and prepared recommendations for the customs services in connection with increased import of consumer goods from China. The EEC Minister for Trade Andrei Slepnyov told Interfax about the results of work, successes and failures, as well as plans for the future.

- The Supreme Eurasian Economic Council met. What did the heads of the Customs Union (CU) member-states feel about the first year of operation of the Common Economic Space (CES) of Russia, Belarus and Kazakhstan, and its supranational regulatory authority, the Eurasian Economic Commission (EEC)? What priorities have been set?

- The main result is that the leaders confirmed their willingness to advance actively towards integration. They stressed that it was important not to run ahead of things and that all plans, set at the time of establishment of the CES, should be implemented in full. Currently, overleaping certain stages or incomplete achievement of the goals, which have already been set, and passing to new goals would be dangerous. The EU experience shows that rush can result in great problems at a later stage.​ 

Importantly, the presidents stress that the new Eurasian Economic Council to be completed by January 1, 2012 will not be a simple sum of what we already have in terms of the legal framework and agreements reached. So, they instructed us to develop, by May 1, 2013, a plan of further integration steps. These steps should reflect the differences between the Eurasian Economic Union and the current situation with our integration project.

The general development direction is clear – first of all, it will include further consolidation of the common market of goods, services, labour and capital.

 Much has been achieved in terms of completion of the common goods market, but still there are segments with no free movement of goods. Much work needs to be done in the market of services and in the capital market, and today we only started developing common regulations. Certain work in the labour market has been done, but still this work is far from completion.

 Working in these areas to complete common markets is the primary task. Another task is to work out a plan of how policies in the field of agriculture, industry and infrastructure will be harmonized and developed.

- Lately, there has been much talk, for example, about aligning excise on alcohol and tobacco, and building a common market of services. The issue of harmonizing the stock market regulations was also mentioned. What is the current situation around these issues?

- These things are of different scale. As regards circulation of excisable goods, this issue is important, but rather narrow. Work is being done here, and certain agreements on unifying excises have been reached. The main thing now is to develop common regulations governing marketing of such goods, which would enable control over their production, movement and sale to prevent any abuse during cross border operations. There is a draft agreement being discussed now, and we hope the issue will be resolved in the near future.

 As far as the market of services is concerned, this task is of a totally different scale. It covers a widest area, more than one hundred large sectors, where approximation and harmonization of regulations are expected, while in some sectors unification is expected.

 The most important international commitments are set forth in the Agreement on Trade in Goods and Services: every six months we shall hold negotiations for further unification of regulations in the services sector. It is a direct obligation under the agreement. Besides, it clearly states that by 2020 we shall achieve mutual recognition of licenses in the financial services sector; i.e. a company licensed in one state will be entitled to operate in all the three states. That’s the result we must achieve.

However, this does not mean that a common market should be created for financial services only; of course, a comprehensive market should embrace as many sectors as possible. Obviously, it can not be achieved with one decision only, and a kind of transitional period will be required, probably, with some exceptions. Nevertheless, a common services market is a key objective, since this sector embraces a half of our economy.

 The EEC in cooperation with the parties shall submit their action plan to the Presidents next year, by May 1.

I would also like to highlight that at the summit the Presidents agreed to meet three times a year and personally address all road forks of integration, because integration, as can be seen from the experience of our EU neighbors, requires ongoing attention and political decisions by the leaders. The bureaucratic machines are largely inclined to protect their own interests, thus decelerating integration; hence, political will is needed to keep the process running at the required pace.

- You have reiterated that one should not hurry up too much, and that first you should complete everything you have already started, so is it a kind of general objective or is it connected with any specific failures?

- Indeed, the deadlines for a whole range of issues have been postponed to the next half of the year, largely because the parties failed to approve relevant international treaties. Are these successes or failures? Rather, failures. No that these are Commission’s failures, but rather these are failures of all of us, because it’s not easy to find a solution that will be acceptable for everyone, when it comes for intergovernmental agreements, and inside any government, there are specific bodies, each having an opinion of its own.

Negotiating the establishment of the CES, the parties postponed many controversies to the next stage and fixed only the most essential arrangements. Now, it’s high time that such details were addressed, and we have to find specific solutions. And maybe the fact that the leaders decided to meet three times a year is a response to such a situation. Such situation is not unique: look at the EU, with their leaders meeting almost every month.

- Could you highlight specific issues that caused the hottest debates this year?

- As regards our trade balance, we have no problems here, largely because most issues here have been settled and we had an excellent framework of the Customs Union. As regards the challenges addressed by my peers, the EEC Ministers responsible for other areas of cooperation, I think discussing their work would not be correct. There were hot debates, for example, around antitrust policy, but anyway we managed to make a decision regarding the criteria for cross border market. It is a most important integration-related topic, and we managed to deal with it thanks to the persistence of my peers and support from the Council.

- What do you think about the results of the year in general?

- Look how the Commission is working! No one could even imagine that a body set up on February 1, would make more than 300 important decisions by the end of the year. We adopted the new Common Customs Tariff in connection with Russia’s accession to the WTO and several scores of other decisions to implement the WTO rules and requirements. These include sanitary measures, technical regulation and customs regulation – all kinds of things. A body of several months old managed to organize all that work, ensure timely decision making in such a way that no one noticed any problems.

Developing international contacts is one more area of our activity. Currently, we have already established a systemic dialogue with the government of Ukraine, and early in December we signed appropriate instruments and formalized our dialogue with the government of China – we established a regular trade dialogue and signed a memorandum for sharing information about measures taken to protect our markets. Now, we are actively discussing how to interact with the European Union. The EEC delegates participated in a number of APEC events, WTO forums, etc. So, you see that we have achieved a very good progress in terms of international cooperation.

Please note that a decision was made in the field of antitrust regulation, whereby the Board actually cancelled the resolution of the government of Russia restricting competition in the field of worsted cloth supplies under government procurements.

In general, I feel positive about the progress of work.

- In the middle of the year, antidumping and protective investigations were delegated to the level of Commission. In particular, we considered an application connected with import of combines. As, was reiterated at different levels, the agricultural machine building industry, along with the agricultural sector, can suffer a particularly great damage from Russia’s accession to the WTO. At what stage is this investigation?

- The investigation shows that there are grounds for applying protective measures. Today (December 25 - IF), the Commission made a decision on this critical issue, and we are introducing a preliminary special protective duty of 27.5%. This preliminary measure will apply until July 5, 2013.

- What about protecting other industries? In particular, increasing tariff protection. Do you have any plans?

- It’s a delicate question that shall be addressed on a case-by-case basis. Raising tariffs is not always good, either for consumers, which is obvious, because prices may increase, or very often for manufacturers. The commitments to the WTO require gradual reduction of tariff protection. Accordingly, if duties are raised today, and in a year are reduced sharply, this gives rise to the question what the state’s goals are and what message it has for business.

By raising tariff protection we, in this or that way, undermine the competitiveness of businesses. Sure, there are situations when they do require such increase, when they are affected by weather conditions or when their competitors abuse the subsidies, or in case they implement investment projects and loans are expensive. However, if a sector develops in a more or less normal way, then tariff protection going up and down will undermine the economic incentives in the given sector. One should be very careful about it, especially during accession to the WTO.

Accession to the WTO assumes that everyone should become concerned with their competitiveness; everyone should understand that competition will increase. Costs should be cut, and business performance should be enhanced, and new technologies should be implemented, one should me more organized and search for new partners and new markets.

Still, since we have more than 11 thousand tariff positions in the Common Customs Tariff, and it is a living organism, ongoing clarification is required.


- Who applies most often?

- It is the Russian side, because it has the most diversified industry and the broadest interests. However, the Belarusian side also submits its proposals, in particular those related to the agricultural group, and so does Kazakhstan. We have a rather balanced situation in this respect.

For example, there is a complex proposal from the Belarusian side regarding dairy products, which is being considered by the national authorities at the moment. I hope the parties will arrive to some conclusion on this issue by January.

- Recently, Federal Customs Service officers stated that almost in all regions not more than 50% of entities engaged in foreign trade submitted statistical forms needed to keep Customs Union mutual trade statistics. However, they also say that mutual trade growth rates are almost twice as high as in trade with third countries. How accurate are these data?

- Based on our statistics, mutual trade growth rates are really higher than those for foreign trade, notwithstanding that the share of fuel and energy resources in mutual trade is considerably smaller, which is good. Look at individual segments and the absolute leaders become obvious – these are machine building industry, consumer goods and chemical products. It is clear that these are not just market-determined figures, and the driver of mutual trade is clear.

In general, everything goes naturally, because the Customs Union is a reality, no borders is a reality, and common regulation is a reality. There is no need to fill out any declaration, or obtain any certificates, since there are common requirements, common access to government procurements, etc. It’s absolutely clear that business start taking this into consideration and act accordingly. Indeed, that was the goal of all of this.

Is there potential for further growth? I believe there is, because now both Kazakhstan and Belarus are implementing investment projects focused on the common market, in particular on Russia. Clearly, some time should pass for them to start manufacturing products and launch the entire process, but I think it’s a long-term trend. Similarly, Russia will increase its supplies to the markets of Belarus and Kazakhstan, since companies are gradually deploying their networks, and this effect will be manifested rather clearly. It is especially true if we proceed to building a common services market. And if we manage to harmonize the infrastructure and the programs of industrial and agricultural development, the Customs Union can demonstrate even greater potential.

As regards the problem of mutual trade statistics… Yes, there is a problem, and it’s not easy. It lies in the fact that, on the one hand, we eliminated all borders and declared free movement. On the other hand, however, statistics in any form means control of movement. Inventing a form that would not bind businesses with any new declarations or complicate trade is not easy. Kazakhstan and Belarus objected the approach we used at the initial stage. So, we invented the mechanism that is used now. As we expected, it’s not very effective. We should find a compromise to have reliable data about trade flows and understand what is going on.

The most important thing, however, is the issue of interaction between the customs services of the three states. It includes information sharing, presence of parties’ officers at the borders, application of common risk management schemes and anti-smuggling measures. The motivation of business is clear: they see an opportunity to use a more favorable scheme by importing goods through the border of one state and selling them in the common market, and they will use such scheme. This will persist until the customs services arrange cooperation.

We may blame the WTO for increased imports, but the contribution of reduced tariffs may be n-fold lower than inefficient operation and inefficient interaction between the customs services. We may build tariff policy and impose protective measures, but what will be the sense if they are reduced to zero by our law enforcement practices?

- Did you analyze possible grey imports through Kazakhstan? What is the result of your analysis?

- We identified specific problems. Statistical data show that increased imports from China correlate to increased supplies to the common customs territory, and it is clear that there are differences in customs clearance of certain goods (in particular, footwear – IF) by the Russian and the Kazakh customs service. Currently, we are preparing an application regarding such practice, and we will ask for additional information; but I believe there are reasons for the customs services to more closely address the issue of how to classify goods. Customs duty rates (higher or lower - IF) depend on how goods are classified. Practices can differ in terms of classification and this is confirmed by all available data.

- You say that new manufacturing enterprises, focused on the Customs Union markets, open. In what industries?

- The practices here are rather wide. Kazakhstan manufactures consumer goods, food and household appliances. Belarus is also developing actively, not only in these sectors. Automobile construction projects with Russian investors were announced in Kazakhstan; and joint projects in the field of regional aviation are under discussion with Kazakhstan at the moment. Belarusian enterprises may also participate. Recently, Mr. Nazarbayev opened a rolling stock factory that is also focused on the common market. It’s only the beginning, with the main effect to be manifested in 5-7 years. An investor needs time to make a decision, build, implement and launch manufacturing.

- Do any enterprises open in Russia?

- Russian manufacturers would rather adjust their plan, taking into consideration a larger market. We can hardly speak of any special projects here; we see output growing. Major projects are to be implemented in pursuance of the agreed industrial, agroindustrial and infrastructure policy. For example, Western China – Western Europe road is a topical issue. Building the road is not enough, because infrastructure is needed to maintain it.

- Recently, the EEC was asked to prepare and submit, by April 1, proposals regarding labeling of goods originating from the member-states for their positioning in the external markets. Please tell about the goals and when such labeling will appear.

- We are speaking of “Made in Eurasia” brand. It should not be perceived as a country of origin. So far, we are not ready to use the Customs Union instead of the country of origin, because this can be done only after the status of Customs Union goods is generally recognized all over the world.

However, positioning goods as manufactured in the Customs Union deals with marketing and image, and requires additional study. Let’s look at the results of such study, what we will have and, most important, whether businesses will be interested in supporting such a brand.