Wed, Jul 07, 2010 - Page 6 News List

Russia forms regional economic bloc

OUT OF THE LOOP Russia remains the world’s largest economy outside the WTO, and the new trade union with Belarus and Kazakhstan could derail talks again


The leaders of Russia, Belarus and Kazakhstan took their longest stride to date in linking their economies, forming a customs union that they say will soon evolve into a more ambitious common market, with Russia at its hub.

The agreement, for now, eases trade among the three large former Soviet economies without fully abolishing all duties and tariffs.

The three also stopped short of reaching a common position on membership in the WTO, something Russia as an individual country has been trying to negotiate since shortly after the Soviet collapse in 1991.

The agreement, celebrated with much fanfare in the Kazakh ­capital of Astana, eliminates obstacles to trade and investment that went up after the collapse of the Soviet Union. That alone, analysts said, could give a boost to the region’s economies by introducing them to greater competition.

The signing was also a victory for Russia’s leaders, who have made the customs union a pet project for a variety of reasons, notably because Moscow stands to benefit as a natural hub for regional finance and trade.

However beneficial for Russia’s regional standing, though, the agreement seemed to risk again derailing its long-delayed membership application for the WTO.

Last summer, Russian Prime Minister Vladimir Putin said that Russia would abandon its unilateral membership bid and instead seek to join with Belarus and Kazakhstan in the customs union — an apparent signal that Russia had other options if WTO conditions were seen as too onerous. Later, ministers backtracked and said Russia would negotiate for entry separately.

However, after signing the agreement on Monday, Kazakh President Nursultan Nazarbayev again said Russia, Kazakhstan and Belarus had agreed to apply collectively.

If that indeed reflects policy in Moscow, it would most likely push over the horizon any membership for Russia, by far the largest economy outside the WTO. Russian First Deputy Prime Minister Igor Shuvalov clarified to reporters that countries were still deciding their WTO accession strategy, and hoped to resolve differences on this matter “in the coming weeks.”

Russian President Dmitry Medvedev said at the signing ceremony that the three countries would try to open their economies fully by the beginning of 2012. The first step is harmonizing customs rules. Later, they will discuss free movement of labor and capital.

“A lot of work remains before the formation of a common economic space,” Medvedev said, according to comments published on the Kremlin’s Web site. “But, considering that it really is a beneficial and interesting endeavor, I’m sure we can agree on everything.”

For Russia, the push for a free-trade pact that began during the financial crisis is a change of tack in its economic policies in the former Soviet space. Russia, which found itself in the favorable position of holding hard currency reserves even as Western lenders were pulling out of the region during the crisis, moved away from loans and direct subsidies of fuel, and toward an emphasis on more sweeping economic integration.

“This is a very positive paradigm shift in how Russia deals with the near abroad,” Yaroslav Lissovolik, the chief economist at Deutsche Bank in Moscow, said in a telephone interview. “Previously, it was a one-way street, where Russia was giving out economic favors in exchange for political favors.”

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