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Customs Union of Russia, Kazakhstan and Belarus is first success in CIS integration, says EBRD

By Svitlana  Pyrkalo

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The Customs Union of Russia, Belarus and Kazakhstan is the first successful example in regional economic integration between countries of the former Soviet Union, according to EBRD economists.

The new survey has assessed early evidence of what the new Customs Union, created within the Eurasian Economic Community, has achieved in the two years since the introduction of common external tariffs.

The EBRD’s Transition Report 2012,  “Integration Across Borders” (6MB - PDF), published today, assesses the general economic impact of integration, as well as analysing in a separate chapter the proposed European Banking Union and the impact that this may have on the rest of the EBRD region. (Chapter 4 (2MB - PDF))

Belarus, Kazakhstan and Russia agreed to establish the Customs Union in November 2009. While many benefits of the union remain to be seen, it is clear that common tariffs and reduced non-tariff barriers are affecting trade both internally, between the three members, and externally with the rest of the world.

EBRD economists believe that previous attempts towards economic integration in the post-Soviet space, such as CIS free-trade agreement, created little actual integration.  However, the Customs Union has in fact introduced mechanisms of trade integration, particularly by lowering non-tariff trade barriers. Potentially the union can bring further benefits such as improved cross-border infrastructure and strengthened institutions.

Since the creation of the union, trade among the three countries has doubled. The increase has been caused mainly by post-crisis recovery, but also by reducing non-tariff barriers and to some extent by common tariffs.

Non-tariff barriers – for example, the time that it takes to clear goods at borders – have traditionally been a major trade obstacle in these countries. The report shows that such non-tariff barriers are much more important for trade than more traditional barriers, such as import duties.

The structure of exports from Belarus, Kazakhstan and Russia also suggests that regional economic integration has the potential to act as a springboard for exports to the rest of the world. Higher-value-added goods first exported within the regional bloc are likely to later be exported to other destinations.

At the same time, the report shows the introduction of a common tariff in Belarus and Kazakhstan has had a negative effect on trade with China, and to a lesser extent with the European Union (imports of the affected goods declined by 2 to 3 per cent on average). Kazakhstan increased imports from Russia as Chinese imports became more expensive. To date, the Customs Union appears to have had tariff-related trade creation effects only for Russia, where many import duties were lowered as a result of the customs union.

Economists at the EBRD warn that the Eurasian Economic Union will face challenges ahead, including to create supranational structures with better governance capacity than national institutions.

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