Belarus, Kazakhstan and Russia have determined the key area of business development in the Customs Union and the Single Economic Space
Belarus, Kazakhstan and Russia have determined the key area of business development in the Customs Union
and the Single Economic Space
new opportunities for implementing joint projects as well as ways to remove barriers that stand in the way of tighter business cooperation of the three countries were discussed at the conference “from the Customs Union to the Single Economic Space: business interests” that took place in Moscow in July. attending were the heads of government of Belarus, Kazakhstan and russia. the prime ministers appreciated the business climate improvement proposals voiced by businessmen.
The discussion about how advantages of the Customs Union can be made more tangible for business was productive. Participants at the conference remarked that the treaties and agreements signed by the Customs Union member states had considerably facilitated the transportation of commodities. The existing borders no longer separate the three countries from each other. The documents had laid down a solid base for successful development of business cooperation.
In November-december 2010 Belarus, Kazakhstan, and Russia signed 17 treaties that made up the legal base of the Single Economic Space (SES). The number includes treaties on a coordinated macroeconomic policy, coordinated principles for currency management, creation of conditions on financial markets to enable a free money flow, documents on single principles and rules of competition. These documents are meant to secure a free flow of commodities, services, capital and workforce between the three countries. There are plans to sign about 30 new treaties in the near future to build upon the existing SES documents.
It is simpler for Belarus, Kazakhstan, and Russia to unite efforts to get integrated into the global economy, stressed Russian Premier Vladimir Putin in his speech at the forum. He remarked that the Customs Union member states had gone to considerable length to create the single customs territory and the Single Economic
Space that will become fully operational in January 2012. Customs control has been shifted to the external border of the Customs Union this year.
“It is not a formal cancellation of administrative procedures. For the first time since the Soviet Union collapse a step has been made to restore natural economic and trade ties in the post-soviet space,” stressed Vladimir Putin.
Prime Minister of Belarus Mikhail Myasnikovich believes that the Customs Union and the economic associations that will follow it will be needed at least because there is trust and the understanding of the need to make certain compromises in relations between nations.
The G3 integration has undoubtedly generated tangible positive results: in January-april 2011 the trade turnover between Belarus, Russia, and Kazakhstan went up by 43%. It is a very good indicator, the prime ministers of the three countries believe.
Towards a Single Taxation System
Many issues – in tax legislation, manufacturing cooperation, development of transport infrastructure - will have yet to be addressed to allow full use of the Customs Union’s business potential.
For instance, at the conference President of the Kunyavsky Business Union of Entrepreneurs and Employers Georgy Badei said that it was necessary to harmonize laws within the G3 framework. For now legislations of the three countries differ in the content of taxes, tax rates, and the formation of the taxable base. Georgy Badei suggested that business associations of the three countries should focus their attention on cooperation with the government in order to resolve the problem. In his opinion, the tax legislation of Kazakhstan should be used as a reference point because it is more liberal than those of Belarus and Russia.
“If we want to take the best, I suggest using the Kazakh system and building around it,” remarked Georgy Badei.
The President of the Kunyavsky Business Union also suggested revis- ing the social tax that employers have to pay these days. For instance, in Belarus the social tax is set at 34% of the salary fund while in other countries the figure is much lower. VAT, other indirect taxes also need close attention, believes Georgy Badei. Experts believe that in the first few years after Russia introduced VAT based on the country of destination principle Belarus’ registered export dropped by about 30%. Difficulties with confirming export deliveries forced many Belarusian businessmen to open representative offices in Russia in order to confirm the import of commodities from Belarus. The package of agreements signed as part of the Customs Union relieved Belarusian businessmen from the need to set up representative offices in Kazakhstan in addition to those in Russia. Some of the problems have been resolved this way but there are still difficulties with confirming the collection of indirect taxes.
Harmonization of the taxation systems is a difficult way to establish, if possible, minimal tax rates, remarked Dmitry Kiyko, Head of the Central Office for Tax Policy and Budget Revenues of the Belarusian Finance Ministry. Each country has compiled its own list of major taxes, which are subject to unification, about 6-7 of them. Work is in progress to create the foundation of the new taxation legislation. Peculiarities of the three economies are taken into account. It is the peculiarities that make the advance towards single tax rates slow. The process will take a lot of time and will need close attention. First of all, the possible range of tax rates has to be worked out.
“The interest of the business community in minimizing social tax rate is understandable however it is necessary to take into account the need to observe social justice principles,” underlined the representative of the Belarusian Finance Ministry.
Transit Without Barriers
Representatives of the transportation industry also mentioned problems that exist in the Customs Union.forinstance,nikolaiborovoi, President of the Belarusian association of international road carriers BAMAP, believes that the three countries do not use their transit potential in full. The need to enable a single transport space is particularly vital these days because important international motorways and railroads cross the Customs Union territory from east to west and from north to south. Their capacity is only partially used because Belarus, Russia and Kazakhstan account for only half of the possible freight traffic.
According to Nikolai Borovoi¸ the development of transit opportunities is slowed down by several barriers that greatly reduce the competitive ability of the transit corridors
of the three countries. For instance, a truck can travel 280km per day on the average in the Customs Union while in the European Union the figure stands at 800km.
“The slow vehicle speeds drags out the time required for the exchange of commodities,” said Nikolai Borovoi. “We are working so hard to find investments to only put them on hold with trucks”.
Steps are taken to improve the situation. In particular, efforts are put into allowing trucks to cross the Belarusian-russian border as fast as possible.
“It is a step forward and we should be consistent in going forth,” stressed Nikolai Borovoi.
Chairman of the Belarusian Chamber of Commerce and Industry Mikhail Myatlikov also voiced his views on how the advantages the Customs Union offers can be made more tangible for the business community. He suggested granting special protection to the manufacturers that try to use as many domestic components as possible. In his opinion, it is necessary to encour- age domestic production, reduce the share of imported components in Belarusian products and make the transition to the development and production of own goods. It will allow creating new high-tech enterprises, additional jobs, securing extra tax revenues for the state budget.
“We strive to reach these goals and will protect the manufacturers that use this scheme. Forms of cooperation may vary and may include joint ventures,” said Mikhail Myatlikov. In his words, these issues were raised before the heads of government, ministries and agencies of Belarus, Russia, and Kazakhstan.
New Forms of Cooperation
In order to enhance the competitive ability of their economies, Belarus, Kazakhstan, and Russia should make the transition to new more advanced forms of cooperation – transnational corporations, Prime Minister of Belarus Mikhail Myasnikovich said at the confer- ence. It is these alliances that can make the Customs Union a global focus of economic power in the future. The three countries can join efforts to promote their products onto foreign markets more easily.
The Belarusian Premier invited business circles of Russia and Kazakhstan to more actively participate in the privatization of enterprises in Belarus. He remarked that the country expects investments in the chemical industry most of all. According to Mikhail Myasnikovich, large and small chemical industry projects are also promising. Belarus is also interested in attracting investments in pharmaceutical industry, development of mobile communication, microelectronics, metallurgy and mechanical engineering.
It is necessary to establish integration in the high-tech area, too, added Mikhail Myasnikovich. The construction of the Belarusian nuclear power plant is one of the most promising projects in this area. Russia will take part in the project.
The Belarusian head of government also underlined the importance of enabling equal economic operation terms in the Customs Union.
“We all know about the issues that have yet to be addressed to enable the single competitive space on the common market, to do away with state protectionism and unfair forms of subsidies to national manufacturers,” said the Belarusian Premier. “The fact that the government is involved in setting prices for certain commodities in the Customs Union these days results in a colossal disparity of prices on the common market and is in essence aimed at reducing the competitive ability of commodities made by some countries while subsidizing the export of other countries”.
Mikhail Myasnikovich believes it is impossible to resolve these problems at once. However, efforts should be put into reaching these goals in order to fix the differences in prices for fuel, energy and other commodities.
“Certainly, we have a major disparity of prices, for instance, prices for natural gas. Over the last six years the natural gas price Belarus pays has increased by 350% while prices for Belarusian exports to Russia went up by only 22%. Truly equal conditions are needed in order to enable fair competition,” said Mikhail Myasnikovich.
In turn, Prime Minister of Russia Vladimir Putin remarked that despite the issues that have yet to be addressed, the Customs Union member states have nothing to argue about as far as the formation of the Single Economic Space is concerned.
“We have discussed what has to be done soon in order to make the Single Economic Space fully operational as from 1 January 2012 for the sake of deeper integration of our countries that will bring about a free flow of money, commodities, and workforce. We are close to enabling these conditions. Intrastate procedures in our countries are underway. We have no contradictions regarding these conditions today. Only technicalities are left to be addressed.
“As part of the G3 Belarus, Kazakhstan, and Russia can offer topics for a future dialogue with the European Union and other countries and regions. The Customs Union member states aim to set up a free trade zone with the European Union in the future.
“Consultations on setting up a free trade zone with the European Free Trade Association are underway. There are plans to start negotiations on setting up such a zone with the European Union in the future,” said the Russian Premier. “It is not a simple task but together within the framework of the Single Economic Space we can do it much more effectively and with greater benefits for each country in comparison to each country doing it alone”.
At the conference the sides also came to terms on functions and operation terms of the Customs Union. It was decided that the commission will work on a permanent professional basis. In the near future it will take over about 90 extra functions.
The prime ministers also talked over the establishment of the EURASEC court that will start working on 1 January 2012.
The Customs Union will enter a new development stage when it becomes the Single Economic Space on 1 January 2012. The stage provides for creating a Eurasian union that other CIS states may join. According to Vladimir Putin, “the Eastern alternative” to the European Union may become a reality as early as 2013.
Presidents of Belarus and Kazakhstan,
Alexander Lukashenko and Nursultan
Nazarbayev confirm the interest of their countries
to develop mutually beneficial cooperation within
the framework of the Customs Union
The Kamennyi Log border checkpoint on the BelarusianLithuanian border has been equipped within the framework of the joint EU/ UNHCR project on increasing efficiency of separating and managing migratory flows on the state border and inside the Republic of Belarus (phase II)
Belarus has proposed Russia and Kazakhstan
to create transnational alliances in the Customs Union. The corresponding proposal was announced by Prime Minister of Belarus Mikhail Myasnikovich at the conference
“From the Customs Union towards the SES: business interests” in Moscow on 12 July