April 1, 2010 / 2:20 PM / 10 years ago

FACTBOX-Russia-Kazakhstan-Belarus customs union

April 1 (Reuters) - Ex-Soviet nations Russia, Kazakhstan and Belarus have established a customs union this year to boost trade and investment, but some officials and analysts say Moscow’s partners are struggling to see the benefits. [ID:nLDE62A19K]

Here are some facts about the trade pact:

WHAT IS A CUSTOMS UNION?

A customs union is an agreement between several countries to abolish customs duties on trade between each other, creating a free-trade zone, and to enforce a common external tariff in trade with third parties.

A customs union established by Belgium, France, Italy, Luxembourg, the Netherlands and Germany in 1957 was one of the key steps towards creating the European Union.

HOW IS THE NEW UNION ESTABLISHED?

Russia and its partners are setting up the union in two stages. From Jan. 1, 2010, the three countries dropped most duties on mutual trade and moved to harmonise customs rules.

From July 1, they are to adopt a common external tariff, finalise rules and start redistributing the duties they collect.

WHAT DO THE THREE COUNTRIES TRADE?

Belarus imports Russian oil, gas and metals as well as machinery and sells trucks, car parts, tyres, dairy products, poultry and meat to Russia.

Kazakhstan sells minerals such as ores, metals products and chemicals to Russia, while importing other minerals, chemicals, metals and machinery.

WHAT DO COUNTRIES LOSE AND GAIN?

Member countries open their markets to each other, exposing domestic producers to more competition. Countries with low customs duties, like Kazakhstan, have to raise them, which leads to price hikes on goods coming from outside of the union.

On the other hand, each country’s producers with competitive advantages gain access to new markets. The union also fosters investments between its members in sectors such as oil refining, which involves moving raw materials across borders.

WHAT ARE THE UNRESOLVED ISSUES?

Russia has refused to abolish export duties on oil it sells to Belarus, something analysts say Minsk had expected and seen as the key reason to join the pact. Instead, Moscow has offered Belarus only limited duty-free supplies.

The three nations have yet to agree on how to split customs duties collected. Russia initially claimed 90 percent of the money but Kazakhstan and Belarus are seeking bigger shares.

WHAT DOES THE UNION MEAN FOR OUTSIDE TRADE PARTNERS?

The deal effectively lifts traditionally low customs duties in Kazakhstan, Central Asia’s largest economy, to the Russian level and creates a tariff wall around the three nations’ markets. This makes goods from third countries less competitive and forces businesses and consumers to buy goods produced inside the union. The pact may also delay its members’ accession to the World Trade Organisation, a global trade body.

WILL THE UNION EXPAND?

Officials in two other ex-Soviet nations, Ukraine and Kyrgyzstan, have said they have considered joining the union. However, both are members of the WTO, whose rules make the move near impossible.

WHAT NEXT?

Russia is pushing for further integration by creating a common market that would allow for free movement of labour and capital between the three countries, and then introducing a common currency. However, these moves have yet to be agreed. (Writing by Olzhas Auyezov; Editing by Janet Lawrence)

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