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Interview by the Chairman of the EEC Board Victor Khristenko to the Sovetskaya Belarus newspaper: “We are working to systematize supranational legislation”

Interview by the Chairman of the EEC Board Victor Khristenko to the Sovetskaya Belarus newspaper: “We are working to systematize supranational legislation”

11/28/2012

The recent Belarusian Investment Forum was visited by the Chairman of the Board of the Eurasian Economic Commission Victor Khristenko, a renowned and respected professional manager and a very interesting interlocutor. In his extremely tight schedule, he found some time to meet a reporter of Sovetskaya Belarus (SB) to have a very substantive and subject-specific conversation about the prospects of Eurasian integration.

— Mr. Khristenko, you came to Minsk to take part in the investment forum. What would you say about the role of the Eurasian integration processes in the context of attempts to encourage a flow of investments to Belarus, Russia and Kazakhstan?​

— Speaking about the current stage of integration, we mean, first of all, the first of the four freedoms, the goal of achieving which was set by the heads of our states in the context of creation of the Common Economic Space. These four freedoms are free movement of goods, services, capital and labor. So far, we have been dealing mostly with the movement of goods. Referring to any successes, we, first of all, mean increased trade in goods.

Of course, mutual trade is of great value. However, it is a process, one can say, of the current economic life. Trade alone is not enough to make long-term prospects understandable and acceptable for everyone, as well as stable. The other degrees of “freedom” should be added to achieve this.

As regards labor, we can see positive changes already today. This year, labor migration between the Customs Union member-states has been growing. It is a normal and natural process.

Free movement of capital and services should be added to this. This concerns primarily financial services. These two freedoms taken together form the foundation and the basic infrastructure of economy. The yardstick here is simple. Unlike politicians who vote by their hands, business votes with their money. Persuading businesses to move to a particular location is not easy. They will calculate, assess and only then will vote.

— What investor, do you think, is more preferable in this voting? Should we focus more on attracting foreign capital or should mutual investments within the “trio” be a priority?

— You know, for me, investments have no nationality. The investment process is very complicated. It requires involvement of different financial institutions in a business project. This includes own investments. Then one should persuade banks that their project is efficient; then banks will provide a loan on favorable terms. There are also insurance companies. One should persuade them that project risks are minimal. So, you can see that there are plenty of components here. Investments are a complex process. So, no matter where they originate from: whether from our three states or a combination of countries. What matters is having investments. To have these, this complex process should be arranged in the best possible way in terms of global practices. This will make investment conditions attractive. And, of course, we should use the emerging common market of financial services. Currently, our banks work at each other's sites.

— In Belarus, their presence is rather extensive…

— It’s only the starting position. To develop this, we need to do a lot in terms of regulations and legislation.

— So, it turns out that the national origin of investments is not of primary importance. Establishing an attractive environment to ensure an inflow of investments is the most important thing. Will our three countries, by competing with each other for resources, create a common territory attracting capital?

— Capital should feel comfortable throughout the entire Common Economic Space. Capital owners should understand how their money works irrespectively of the country in which they invest. Project specifics and performance should be the only difference for them. I believe that it is here that the competitive advantages of each of our states will manifest.

For example, if the agricultural sector of Belarus is competitive and has lower costs, then money will flow there. Investors, who previously could think of investing in other projects or territories, will come there. I think this is the essence of sound and fair competition.

— Clearly, investments in a broad sense are a resource for economic renewal. Belarus has launched a campaign to modernize its enterprises. What does the Eurasian Economic Commission think about this goal? To what extent does it correlate with the economic development processes in the partner states – Russia and Kazakhstan?

— It’s an important issue. A similar goal has been set in Kazakhstan and in Russia. Implementing the same goal and achieving the greatest effect is critical here. Russia, for instance, has an entire range of long-term development strategies in the most important sectors such as automobile construction, aircraft industry, pharmaceutics, metallurgy, etc. They cover a period of 15 to 20 years. These documents are products of an intensive joint work involving the state and business. They made it possible to unite three things. These are setting a shared goal acceptable both for business and for the state, sharing related risks and combining resources. Based on this triad, support programs and the whole range of regulatory instruments were built. This work involved the key stakeholders that determine the outlook of this or that industry. As a result, all top-priority sectors currently have detailed action plans.

Working now as the Eurasian Economic Commission, we are trying to exploit the existing experience. For example, as regards the order of the Prime Ministers of our states to move towards harmonization of the industrial policies of the three states.

In this case, we aim not only at achieving a harmonized and agreed policy, but I hope also a common industrial policy in the most important sectors. Without this, even the deepest technical cooperation sooner or later will be perceived as a dependence that should be gotten rid of. The deeper is cooperation, the sooner it will happen.

A common industrial policy, first of all, will give all of us a clear understanding of where we are moving. It will enable us to effectively build regulatory instruments. On the other hand, it will give investors a clear idea of the opportunities available in our vast market and will enable them to orient themselves in terms of promising niches and territories. This applies to both foreign investors and those from the Customs Union business community. By the way, the EU started with industrial agreements in coal and steel industries.

As regards further movement… Sure, we can not do without similar instruments in the field of transport. The Commission started working on a concept of transport policy for the Common Economic Space. The electricity market is to follow. I think we will start this work in the near future.

Besides, we understand that building harmonized sector-specific policies requires common competition laws. Next year, we are to adopt a model law on competition.

To a large extent, all these areas determine the fundamental conditions of doing business.

Making choice is easier when you have common rules that are clear and understandable for any responsible investor. Investors will choose us not because someone has managed to obtain some exclusive service or build a factory. Investors will choose us based on systemic conditions, and objective circumstances that create opportunities for implementing a business project.

— Mr. Khristenko, you contributed a lot to building a common state of Belarus and Russia. Is this experience helpful in promoting Eurasian integration? How far can the trio go along the way that our two states have passed? Obviously, the Union State is the most integrated alliance in the former Soviet territory.

— The Union State has gone rather far in a range of issues. The trio still needs to work to achieve this point in some of them. For example, there is no state border between Russia and Belarus. Nationals of the two states can move absolutely freely between the territories.

The Union State has a rather extensive set of industrial programs in various areas. These include not only their defensive power and military-industrial complex. There are many civil areas. Experience of this kind will definitely be needed. Here, the Union State is the leader.


However, the “trio” does have something that the Union State lacks. For example, let's take technical regulation, a most important and I would even say a fundamental issue. Here, for the first time ever, we draft a package of technical regulations that will become instruments having a direct action within the Customs Union. 


We should remember that it is in the “trio” format that a decision was made to establish a supranational executive body, the Eurasian Economic Commission. The Commission independently makes decisions that have a direct action and are applied directly in the three states. It is an earthshaking breakthrough.

— The discussion regarding Eurasian integration has become particularly acute after Russia’s accession to the World Trade Organization. What is your opinion about its consequences?

— Currently, the WTO lays down the rules in the global market of goods. Living in the global world, building an open economy and living in an open society, we should comply with these rules and, moreover, we should be able to take advantage of them.

To a certain extent, the Customs Union has already received a global quality certificate, since by joining the WTO Russia actually transposed the WTO rules and commitments into the Customs Union regulations. I mean that the accession conditions have been implemented in regulations, tariffs, rules and procedures of the entire Customs Union.

Any decision made by the Commission is validated for compliance with the WTO requirements. All this means that, de jure and de facto, we are already playing on the field of trade and economic relations, which is based on the global game rules.

Sure, this entails certain risks. Risks for non-modernized and not quite competitive industries, agricultural and other sectors. Saying that there are no risks and that the WTO is manna from heaven is not quite true. There are risks, and these risks are considerable.

These risks are set off by two things. First, by the desire and readiness of business to develop and modernize. Second, by the state support during the transitional period. Nothing can be done unless these two aspects are taken into consideration. Goods will just flow to our market.

Adapting to the new conditions is a complex process. Obviously, we cannot do without modernization of our industry, agricultural sector and infrastructure. And claims that everything has been lost because someone joined someone will not modernize anything and will not help at all. So, the current situation is a reason to revise our priorities and understand what can become our competitive advantage in the global market; and business and the governments should focus their efforts on this, taking advantage of the new rights and opportunities.

Kazakhstan now is at its final stage in the negotiations on accession to the WTO. I believe that the accession will happen one day. Nonetheless, as I have already said, we are working jointly in a global format.

— However, Belarus and Kazakhstan still are not WTO members. Can you see any steps that can be taken to accelerate their accession? Does the Russian Federation have any tools to encourage these processes?

— I hope that the Russian Federation, as a WTO member, now has lawful tools to facilitate this process. Previously, it would have been more difficult. I think Russia will take steps to accelerate the accession of the CU and CES member-states to the WTO.​

One should have a clear idea of how to join. Look at some of our CIS peers who have joined the WTO long ago. What are the conditions?

— They seem to have jumped with their eyes closed…

— Zero entry rates. No restrictions on access to their markets. Kazakhstan, however, is finalizing its negotiations based not only on the position of Kazakhstan alone, but also on the position of a Customs Union member. Russia, already having passed this way, helps Kazakhstan.

Objectively, Russia is a huge country, a huge economy. The negotiations with it, though difficult, require a peculiar approach. The approach to smaller economies, however, is tougher. I believe that Russia, as a WTO member, will help minimize the political and other secondary aspects in the context of accession negotiations. Frankly speaking, we all understand that many things, even for Russia during its negotiations on accession to the WTO, were not a subject of an economic discussion. They were purely political. There’s one more thing. One should bear in mind that the WTO itself is undergoing a difficult process of revision of its global trade rules. These negotiations have been ongoing for many years, with no result so far. However, it is very important to participate, at least through Russia so far, in this process and not to be an outside observer.

— You said about risks. Does the CES have or will there be in the near future any mechanisms to minimize the negative consequences of the accession of our states to the WTO?

— Here, I would come back to what I said before: to a harmonized industrial policy. The accession to the WTO and the application of its rules makes this goal even more relevant. What is happening? Competition is becoming tougher. So, an adequate response needs to be found as soon as possible. To find this in some industries such as automobile construction, a shared view and a shared position are required. It is essential to have a long-term vision of the development of the most important sectors, so that the efforts that are already being taken today would produce the greatest effect. Otherwise, such efforts will be made in vain.

Building the platform of the Common Economic Space, we always say that we should be able to keep our domestic market. Our companies shall demonstrate competitiveness. This, however, is half the battle only. Demonstrating our competitiveness in external market is much more important. Expansion to foreign markets is a much more important goal. It is this goal that demonstrates the efficiency of our regional alliance.

— Now let’s turn to the issue of overall competitiveness. The Agreement on the Common Rules and Principles of Competition in the CES has been applied for already a year. I believe that reinforcing the competitive advantages of national manufacturers over companies from third countries is the main landmark in this field. However, don’t you think that the competition inside the “trio” is often the toughest and that this undermines our overall positions in external markets? Such situation is typical for petrochemical, food and light industries, and for the markets of freight and agricultural machines. It is Russia and Belarus that very often compete most intensely with each other. Unfortunately, not always based on market principles.

— Indeed, the most acute competition arises between the entities of our three states. However, it’s normal. It would be worse if all this were done in a hidden manner using partisan methods. This makes it possible to understand the essence of the problem and find solutions. I have always been of the view that building an effective economy and speaking about long-term competitiveness and innovative development is funny when you are afraid of your peers from the Customs Union. Are you going to compete with the entire world, but unable to win your domestic market? It’s inconsistent.

Generally, we should stop being afraid of each other in this competition. A different matter is that there are regulations governing business. Take the existing scope of regulations and rules that our countries have adopted and approved, and you will see that they differ considerably. In this context, the Agreement on Competition that we have signed is a most important basic document. An entire package of regulations, which shall be finalized and adopted by next July, underlies it. It is a huge work, without which many things fall to the “grey” area so far, and local business conflicts occur, which then rise to the political level.

Many things establishing equal approaches still need to be agreed upon and formalized in documents. Meanwhile, the situations that arise very often provoke a nervous and even inadequate response, search for some special tools. Nevertheless, I think it’s a natural stage as our relations become more mature, which stresses the need for achieving a deeper integration. That’s really important – understanding that we have made the first step only, and we need to deepen first of all.

It took Europe 50 years to complete its union. However, no one would dare say that our peers have built a structure that is absolutely able to resist any troubles. Look at the crisis they are facing now. However, the most wise European policy makers do understand the value of integration and say that no disintegration attempts should be taken in the current situation. Integration should be deepened. I believe that strong regional institutions are the only adequate response to the global crisis. These should be regional alliances that will be able to word group-wide interests and in this way to build a new global order. 

We are going through a very exciting period now. And all that we have at the moment as, let’s say, costs of growth – these are a good reminder that we still have a lot to do. In case we are not willing to advance, then we will quarrel all the time: about milk or about sugar...

— The depth of integration is, of course, important. However, there’s a lot of buzz about width. At the level of public consultations, the issue of Ukraine’s accession to the Customs Union and the Common Economic States has been discussed most often. Clearly, the role of political component in this issue is great. Can you see any economic benefits Ukraine can get from participation in Eurasian integration, which would outweigh the political counterarguments?

— I don’t believe that one can buy friends or partners. If you buy someone, then it is most likely that in more beneficial situations they will sell and betray you.

So, one should not force someone to join us. There is no sense in it. It’s a wrong way. The right way is the one of self-determination and choice. Today’s world is so complicated and is exposed to many risks. The countries that can be heard alone are really few. You could count them on the fingers of one hand.

The remaining countries, if they want to be heard and find an adequate response to the risks they are exposed to in this world, are trying to find a form of cooperation. So, the process of regionalization is the leading trend in today’s world.

Everyone should choose their way independently. Ukraine can consider different formats. I believe that Ukraine is realistic and understands that it can hardly address its challenges alone. One way or another, it will try to find the most beneficial opportunities.

There are expert estimates of the impact that Ukraine’s accession to the Customs Union or to the European Union could have on its economy. These estimates were prepared not by our experts. These are studies carried out inter alia by Ukrainian researchers from the Academy of Sciences. Pure figures clearly show that the Customs Union will be more beneficial for its economy, based on its current situation, structure and focus.

However, a decision should not be based purely on economical or political considerations. This can be a value-based choice. What’s most important is that such decision should be made. Currently, the greatest problem for Ukraine is that it is somewhat suspended. I don’t know whether this will last forever. Nonetheless, for us, the Customs Union, the Ukraine is a key partner. Anyway, we will continue to build up economic cooperation with it. And we are already doing it. Recently, we have signed two memorandums of cooperation in the field of trade and technical regulation with the Ukrainian Prime Minister. These provide forums for an ongoing working dialogue.

Time will show what choice Ukraine will make.

— How far can the integration within the “trio” reach? For example, the prospects of introducing a common currency in the CES have been considered only hypothetically so far. But still, it is discussed. What do you think about it?


— I think this issue will not be relevant during the next 5 years. The EEC has a lot of tasks at the moment. It should evolve 17 existing agreements on the Common Economic Space into approximately 60 instruments, including those having a direct action. These will include taking harmonized actions in the field of macroeconomics and monetary policy, and creating conditions needed to launch a common market of financial services by 2020. As soon as these tasks are completed, we will create conditions to discuss the possible introduction of a common currency. Actually, a monetary union is the ultimate form of integration.


We are growing. Now, we need to carefully study the experience of the European Union, for example. We need to understand what mistakes they made in order to avoid such mistakes and not to face the challenges that the Eurozone members are facing now.

By the way, this, again, is a matter of integration depth and width. At some moment, the EU lost sight of this and doubled its membership, being guided mainly by political reasons. It caused deterioration of integration quality. And now, having faced the first and the second wave of the crisis, it is reaping the fruits of their failure to achieve the necessary depth. I hope they will manage to overcome this disease and develop a stronger immunity. This will not be easy, though.

— It seems to me that not only a monetary union is a sign of ultimate integration. For example, the entire competence of the Eurasian Economic Commission is rather specific. It’s a supranational body responsible for resolving purely economic issues. Do you think that similar political structures can be created? For example, a parliamentary dimension of the CES. Under what conditions can this become possible?

— We have the Supreme Eurasian Economic Council at the level of the heads of the states. In fact, three presidents play the role of lawmakers. All agreements that constitute the foundation of the Common Economic Space pass through this body. Saying that the parliamentarians are not involved in this work is not quite correct. All agreements that are being implemented now have been ratified by the parliament in each of the three states.

I think that at the first stage, when a legal framework is being formed, the format of the Supreme Economic Council at the presidential level with the national parliaments also playing an active role is a rather effective structure.

The Customs Code has been adopted. Later, it is most likely that we will arrive to a competition code. More consistent national legislation will appear. It will expand. So, the scope of executive powers at the supranational level will become considerably larger. In this way, in line with these processes, we will come to the need of building other institutions, in particular the parliamentary components. However, the existing format is extremely efficient for the next few years. Indeed, everything we do can be done only subject to political will of the presidents. There are no other institutional bases.

Please recall that the presidents decided to finalize the Agreement on the Eurasian Economic Union by January 1, 2015. I think that by then the issue of setting up an inter-parliamentary assembly of the Eurasian Economic Union will arise, similarly to the existing EurAsEC Assembly. Maybe some day, it will grow to become a Eurasian parliament.

— What about the Fundamental Law? It’s not a secret that the adoption of Constitutional Act, together with the problems related to the monetary union, once stopped the process of building a Russia-Belarus union state. Do you think that such a document is likely to be considered for the CES in the near future?

— Time will show. In my view, the only thing that, fortunately, is acknowledged and offers no alternatives is the need to achieve, in the near future, a depth of integration that will enable us to move forward, and not only with documents, but in life as well. This includes really making our economies more competitive, really improving positions both in the domestic and in external markets, and really making life simpler for business and better for people. It is all this that is the key goal. We have a great deal to do in this area. We may not succeed in everything. However, if we succeed with most aspects, it will be a huge plus.​