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The Eurasian economic Union promises a single energy market

Established Eurasian economic Union has huge potential

May 29, 2014, 19:05

Text: Olga Samofalova

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Nazarbayev, Putin and Lukashenko signed the document on creation of the Eurasian economic Union. It marked a new stage for the unification of commodity and financial markets of the three countries. Minsk and Astana, of course, the most attractive promise to create with Moscow a common market of oil and gas that Russia has, fortunately, managed to postpone for a decade.

The presidents of Russia, Kazakhstan and Belarus – Vladimir Putin, Nursultan Nazarbayev and Alexander Lukashenko – signed historical document: Treaty establishing the Eurasian economic Union. The EEU will start functioning from 1 January 2015.

Putin called it symbolic that the signing of the Treaty on the Eurasian economic Union is held in the capital of Kazakhstan, as one of the originators of the idea of Eurasian Union, standing Nursultan Nazarbayev, voiced her speech at Moscow state University in 1994.

According to Vladimir Putin, this document brings the country to a fundamentally new level of integration. “Preserving fully state sovereignty we ensure more close and coherent economic collaboration and cooperation,” the President said.

“The Eurasian economic Union will work on universal transparent principles clear for all, including on the basis of the principles of the WTO”, – he added. I must say that when Russia joined the world trade organization, it has already agreed with the partners of the customs Union common tariffs and regulations, not inconsistent with the WTO.

As said the newspaper VIEW head of the laboratory for international trade Department of the Gaidar Institute Alexander Knobel, 700-page historical contract consists of four parts.

The first part is the new titles and their definitions: what is the Eurasian Union, the Supreme Council, the intergovernmental Council of EEU court, etc. “Second and third parts is a fully copy of the agreements of the Customs Union and the common economic space,” – says Knobel.

For the future

On the one hand, the Treaty of the EEU does not give anything new from the economic point of view. All that is recorded in the document has already been written in the framework of other associations of the three countries. Therefore, in the short term to drastically increase the trade turnover between the three countries by creating a Union will not work. Moreover, trade between the two countries was duty free since 1992, says Knobel.

However, in the fourth part of the paper, the new Union creates a Foundation for finding further mutually beneficial compromises and removing remaining restrictions. Three States take the obligation to guarantee the free movement of goods, services, capital and labour. In the EEU should receive the same technical regulation and licensing. Members of the Union will implement a coordinated policy in key economic sectors – energy, industry, agriculture, transport.

In the fourth part proposes future arrangements for commodity and financial markets and their timeframe, says Knobel. So, by 2025, there should be common financial mega-regulator, and “signatories” to sign up to a common macroeconomic, Antimonopoly, currency and financial policies. After 11 years, the parties should create a single market of oil and gas. By 2019, Russia, Kazakhstan and Belarus intend to create a common electricity market. More rapid progress must be made to create a single market of pharmaceuticals and medicines. By 1 January 2016.

As for the single financial market, the creation of the EEU will allow in the future to increase the stability of the financial systems of member countries, Putin said. “The removal of barriers to capital will allow to diversify risks, improve the quality, accessibility and reliability of financial services”, – says the President of the Russian Federation.

Gradual harmonization of monetary policy, he said, will not only increase the stability of the financial systems of the member States of the Union, but will make the national money markets more predictable and better protected from exchange rate fluctuations, thereby increasing the sovereignty of our countries.

Nursultan Nazarbayev proposed, without waiting for the creation of a single financial regulator, now is the time to consider Almaty as financial center of EAEU. In this city of Kazakhstan will be a supranational body to regulate financial markets of the new Union. By the way, in Moscow will be located, the Eurasian economic Commission (economic center EAEC), and in Minsk, the Eurasian court (the legal center EAEC).

A single energy market

The creation of a single trading markets in different sectors means not only the free movement of goods inside the EAEU, but also harmonization of rules and tariffs in the markets of the three countries. “Each country has its own rules of application of tariffs for transportation of various energy products. It is assumed that sooner or later we will have a single policy on this issue”, – said Alexander Knobel.

With regard to electricity, now Russia exports it to Belarus and Kazakhstan and imports from Kazakhstan. The main operator of export-import of electricity in Russia – inter RAO UES”. “We have lower tariffs for electricity even for domestic producers, of course, the EEU partners want the same prices for yourself. This is their interest,” – said Alexander Knobel.

The delay in the creation of a single market for energy is a victory for Russia. One thing to keep low prices inside their country, compensating for losses due to export, and another thing to give access to cheap resources to others. Knobel said that Russia hopes for the snooze time to raise internal tariffs for the same electricity that are closer to the rates partners in the customs Union, so when the time comes to unify the tariffs, it will be less painful for the Russian economy.

It also hopes Moscow and the creation of the common market of oil and gas in 11 years, he said. The abolition of Russian export duties for the partners now threatens her big losses. So, in Russia the export duty is almost half of domestic oil prices and domestic price is twice lower than the world, says Knobel.

Kazakhstan and Belarus are trying to win over the Russian oil and gas resources. Although their interests here are different, says the newspaper VIEW Deputy Director of the national energy security Fund Alexei Grivach. And so Minsk will receive Russian gas at domestic duty-free prices of the Russian Federation in the framework of bilateral agreements.

Russian oil to Belarus duty-free is also, however, there are subtleties. Minsk pays to the Russian budget export duties for supplies of petroleum products (made from Russian oil) to Europe (third countries outside the vehicle). Belarusians have tried a deceptive way not to pay the fee: in 2011-2012 were delivered to the EU products under the guise of thinners and solvents.

Kazakhstan, of course, also beneficial would be to buy Russian oil. “They export duty three times less than in Russia, so the domestic price of oil higher. But we in Kazakhstan do not sell. Because this nonsense is to sell cheap oil for the oil-producing and oil-exporting country,” says Knobel.

“Kazakhstan has a possible interest is to use the infrastructure in Russia and to sell the gas for export to Europe. Now Gazprom buys gas in Kazakhstan in its portfolio and sells under its contracts with the EU”, – says Alexei Grivach. According to him, in Kazakhstan many people think that if they sold their gas for export, it would have earned more, but in reality may not be so. “Kazakhstan gets a reasonable margin from the sale of gas Russia, it has no headaches, all marketing risks are borne by Gazprom”, – reminds Grivach.

Therefore, Russia and insisted on the long transition to a single market, it has not turned so that we lose money and opportunity and still get a domestic rival in the European direction. And after 11 years and energy prices inside Russia can come closer to export, and European market may lose its importance for Gazprom or Kazakhstan will not be any extra gas for export to the EU.

“Kazakhstan may not be opportunities to increase volumes of gas for export to Europe. He has the obligation to supply in Southeast Asia and in China in the amount of 5-10 billion cubic meters per year, plus significant volumes of gas Kazakhstan is pumping back into the reservoir for enhanced oil recovery. Oil is a more profitable product for export. And as the fall of oil production, Kazakhstan will have even more to pump gas into the reservoir below the rate of oil production is not reduced,” – explains Grivach.

Potential GDP growth the three countries

Mutual benefit of the integration processes of Russia, Belarus and Kazakhstan has already been demonstrated in practice. Economic ties of the three countries has already been expanded, improving the trade structure, increase the proportion of high-tech goods in the overall structure, strengthening the competitiveness of the three countries in the world economy.

So, for the last three years trade turnover within the Customs Union grew almost by 50%, or by $ 23 billion (at the end of 2013 it reached kzt66. 2 billion). “Together, Belarus and Kazakhstan came in third place in foreign trade of the Russian Federation, after the EU and China… This suggests that we have reached this level largely due to our integration”, – said the Russian President.

He noted that the heads of state today, discussed in detail how to use the potential of the Eurasian economic Union to enhance the flow of goods and investment, expand industrial and technological cooperation. Individual attention participants paid to improving the business climate.

The economic potential of the EEU is very high. “In the future integration effect in the form of growth of aggregate GDP of the three countries could reach by 2030, 900 billion dollars”, – said Kazakh leader Nazarbayev.

Now the economic efficiency of integration is in the plane of the abolition of non-tariff restrictions, drew attention to the expert of the Gaidar Institute. “It is painstaking work, which is progressing slowly, since the formation of the common economic space. Already collected information on a large number of these non-tariff measures, but reversed until the unit,” says Knobel.

In the example, he cites the presence in Belarus of the so-called Institute of specimport alcohol and tobacco. To obtain the right to import alcohol and tobacco to Belarus, it is necessary to pass a large number of additional bureaucratic procedures in comparison with obtaining the right to import other products to Belarus. And this applies both in relation to European countries and towards Russia and Kazakhstan. To non-tariff limitations include the availability of double taxation when VAT is paid in the production of goods in Russia and selling it in another country vehicle.

The EEU also expands possibilities for integration with third countries outside the three countries. According to Putin, the members of the new Union agreed to intensify talks with Vietnam on creating a free trade zone, to strengthen cooperation with China, including in the sphere of information exchange on goods and services, as well as to form expert groups to develop preferential trade regimes with Israel and India.

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