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Countries look to benefit from Customs Union
Published: 18 February, 2010, 10:51
Edited: 05 March, 2010, 23:29
TAGS: Markets, Russia, Ukraine, Belarus, Russia and the global economy, Finance, Gas
A new common market is forming on Ukraine's borders and those of the EU. A customs union between Russia and its neighbors will cut business costs and make the region more attractive to investors.
Slowly but steadily the Customs Union between Russia, Kazakhstan and Belarus is taking shape. In addition, it is becoming an attractive trade zone for its neighbors, including Tajikistan, Kyrgyzstan and Ukraine.
Yaroslav Lissovolik, Chief Economist at Deutsche Bank, said the union is based on existing unions.
“Essentially, I think Russia’s efforts in terms of the formation of the Customs Union, in terms of building this single market with some of the CIS, are meant to replicate the experience with the EU.”
Central to Russia's trading relationship with Ukraine is gas. The country is one of the biggest importers of Russia’s blue fuel, and the transit of Russian gas through Ukraine would be one of the trickiest issues on the negotiating table.
Russia might offer Ukraine cheaper gas under a customs union which could bring benefits for Russia too, says Aleksandr Nazarov, an analyst at IFC Metropol.
“It’s just the diminishing of risks about transit through Ukraine. Probably it would lead to the cancellation of the construction of the South Stream pipeline, because Russia, Gazprom will think that transit risks are minimal.”
Apart from gas, it would open the Russian market to Ukrainian goods and encourage foreign investment, says Deutsche Bank Chief Economist Lissovolik.
“For a lot of the international majors, for a lot of the large foreign companies, Ukraine is seen not just as a very large market to explore and to develop, but also as a springboard for penetration into the even larger Russian market.”
An expanded and integrated single market with a combined population well over two hundred million would be of great interest to the EU and China and would change the existing import-export patterns.
If successful, the union could provide a platform for another of Moscow’s long-cherished desires: to make the rouble the regional currency – similar to the euro.
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It just shows how inefficient and selfish was the Boris Yeltsin strategy in 1991 by breaking the Common Market when it should have done the opposite: A Common Market, Common Currency and Customs Union, similar to the European Union, OPEN to new member states like Bulgaria, Romania, Greece, Serbia, Mongolia, Afghanistan, Iran...adding 160 million people to the 300 million people of the former soviet (and Russian Empie) Republics. After all, in that Common Market and Currency Union GREECE would have been a Leader, with the highest income per head and the gateway to the Mediterranean Sea.Ukraine also could have competitive products inside that Common Market...Meanshile, inside the E.U.. Common Market most Ukrainian Corporation will have to close because they cannot compete to the ones in Western Europe. That is something Spain and the former DDR know well. So that makes the mistake of Boris Yeltsin catastrophic. Some would say that the Russian Federation couldn´t do any other thing....but that is not true. All the opposite happened as we know from manufacturers like Antonov, or from the Russian Fleet or Baiknour. That strategy was wrong. Probably what Boris Yeltsin thought was just a merger of Russia into the E.U. and NATO, but it is logical his supporters didn´t understand why the U.K. and the U.S. were forcing comfrontation against Russia in places like Ukraine, Georgia, the Baltic states, Poland, of course with the support of local Nationalist parties. From an economic and social point of view a Common Market, Customs Union and Currency Union under a Western-like Capitalist system, including not just the former soviet Republics (from Ukraine to Kazakhstan) which ALREADY had a common market, a customes union and a currency union, but also friendly countries with an old cultural and historical link to Russia like Bulgaria, Romania, Serbia, Greece and Mongolia...and open to build a common market with other nations like Afghanistan and Iran.
In fact, it was amazing the contradiction between the liberal principles of the Boris Yeltsin Team and the result: instead of a Common Market and a Customs Union they raised borders, they created new currencies and tariffs under Nationalist principles, they established lots of barriers between instead of guaranteen a common space, with common rules, free circulation of goods, services and people. It was completely ridiculous what has happened in Russia: a common space which divides itself and just a couple of decades later unites again. Nationalism based on promoting ethnic, social and economic difference was used to divide the people breaking the Common Market when it had to do all the opposite: enlarge the common market under caapitalist and liberal principles. Free trade; free circulation of people....and a common currency. So instead of a Russia of 142 million people, the Customs Union would have 460 million people, similar to the E.U. and NAFTA. For Ukrainian, Greek, Romanian, Bulgarian or Mongolian Corporations it would be much easier selling their products inside that Market than to the E.U. where many of those corporations have to close and the unemployees have to live from public umproductive subventions from the E.U.....The problem is that now all those countries have established strong economic and military links to the U.S., the E.U. and China which are very difficult, if not impossible, to break. So Russia, instead of leading a common trade block similar in population to NAFTA or the E.U. and similar in GDP to China, becomes a second rate player, a mere supplier of goods for both the E.U. and China...