Russia tends to make money on Belarus in Customs Union

Russia has decided to put the snatch on the Belarusian budget. The Kremlin thinks Belarus has to share part of the oil export duties for the fuel produced from Russian oil at Belarusian oil-processing plants. They even say there is some document proving it.

Russia has artificially put off the creation of a single customs area

Syarhei Chaly: The Russian Ministry of Economy has sent a letter informing about its intention to impose export duties on oil. Or to be able to get at least part of them in the Customs Union.

ERB: What is the intention based on?

Syarhei Chaly: We have an agreement on creation of a single customs area signed by the Customs Union Commission in November 2009. The single Customs area had to be created by July 1, 2010 but… According to the letter of the Ministry of Economy, it has to be done in two stages.

The first stage was over on July 1, 2010 when the Customs Union was created. Let us look through the Agreement on creation of a single customs area and creation of the Customs Union of 2007 and read article 2:

“The decision to unite the countries’ customs areas into a single customs territory and to create the Customs Union is taken by the highest body of the Customs Union after the following terms are fulfilled:

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b) introducing and using a single trade regime with third states”.

However, as the Agreement mainly concerns import issues and does not regulate the export, Russians claim that a single trade regime for third states had not been created yet. It means that the single customs area has not been created either. The second stage in needed for it –July 1, 2011.

It means that it is impossible to use article 3 of the Agreement according to which:

“The sides cannot use customs duties, restrictions of quantity and any equivalent attempts in mutual trade after the single customs area is created”.

ERB: Russia is using the convenient logic during the creation of a single customs area. The area and the Customs Union have not been created simultaneously: at first it was the Customs Union on July 1, 2010. The economic area will be created later.

Syarhei Chaly: At the moment it is not clear what we created on July 1, 2010. The single customs tariff was introduced on January 1, 2010. We had to change all export control to correspond it to the Customs Union on July 1. Producers, be they Russia, Belarus or Kazakhstan – had to be indicated as “Customs Union”.

ERB: Can trade restrictions and customs duties be preserved between the members of the Customs Union until a single customs area is created?

Syarhei Chaly: They can. And Russia is actively using the fact to protect its market and to make money. We have been observing it since January 2010 when import duties for Russian oil were introduced. We will witness it in alcohol import a bit later.

Russia’s claims to part of export duties of Belarusian mineral oil are groundless

Syarhei Chaly: Let us continue studying Russia’s logic. If a single customs  area is created and the Customs Union starts functioning to the full and if there is a single trade policy for third states where both import and export will be regulated, it will result in an interbudget division of both import and export duties. However, instead of trying to settle this issue, Russia has recalled an agreement signed 15 years ago. It denoted the terms of assigning customs duties for products made by Belarusian enterprises from Russian raw materials.

ERB: All Russian oil was imported to Belarus duty-free at that time and Russia was interested in getting dividends from the exported part.

Syarhei Chaly: The agreement was signed in the old Customs Union of our states. The interbudget distribution of the duties was 85% for Russia and 15% for Belarus back then.

Is it possible to refer to that project now? The document with a very long title “Agreement between the Russian Federation and the Republic of Belarus on the way of distribution of export duties for exported goods produced at Belarusian enterprises from Russian raw material between the budgets of the Russian Federation and the Republic of Belarus” of May 12, 1995 could be in power – attention! – “six months after one of the sides had sent a written notification about its intention to cancel it to the other side”.

ERB: You are speaking as if you know that somebody has already sent such a notification to someone.

Syarhei Chaly: Exactly! The resolution of the Belarusian Council of Ministers of January 12, 2001 (#43) is the written notification. The agreement with the long title expired in the middle of 2001. Any interbudget distribution of custom duties is out of the question at the moment.

ERB: Ill luck. 9 years and not just six months has passed since the Council of Ministers abolished the agreement! Doesn’t the Russian Ministry of Economy know about it?

Syarhei Chaly: It does. That is why the letter says “… it is necessary to provide the realization of the principles mentioned in part 3 of article 4 of the Agreement on the Customs Union between the Russian Federation and the Republic of Belarus”. Providing the realizations of the principles and insisting on fulfillment of the Agreement is not the same thing. It is a rather dangerous notion as there can be different ways “to provide for the realization of the principles”.

Single economic area created earlier then single customs area?

ERB: Let’s sum it up. At first Russia delayed the creation of a single economic area until mid 2012 in order to create a Customs Union that would protect the Russian import and would not create obstacles for the export of Russian energy carriers. It even allowed making money on Belarusian oil export duties.  

There is one more trick here:  Russia has delayed the creation of a single customs area by mid 2011 to avoid using a single trade regime for third states. It allowed it to lay claims to part of the export duties for Belarusian mineral oil produced from Russian raw materials according to previous Belarusian-Russian agreements abolished now.

Syarhei Chaly: I cannot think of a way to demonstrate the absurdity of this situation better.

ERB: If the single customs area is created, all export duties will be distributed between budgets of the three members of the Customs Union. Export duties for Russian energy carriers will be included there.

Syarhei Chaly: I still claim that the single economic area is a trick invented to keep the Customs Union the way it satisfies Russia.  It is Russia’s attempt to avoid sharing. Now Russia is not only trying to avoid sharing, it is hankering after things belonging to us.

The Belarusian Foreign Minister Andrei Yeudachenka claimed at the end of August that our country expected the pack of documents about the creation of a single economic area to be ready – attention! – by January 1, 2011! Moreover: “We have noticed the intention of our colleagues from Russia and Kazakhstan to finish the work in the same term”, - added Mr. Yeudachenka.

It turns out that officials think that the single economic area cancelling trade restrictions for the domestic market of the Customs Union can exist without a single customs area the creation of which is being delayed by Russia in order to keep restrictions.

“Prohibition” for Customs Union

ERB: We cannot stop discussing the Customs Union for some reason.

Syarhei Chaly: How can one do it? Russia initiated a few events last week and they mean that: the Customs Union does not function the way it was supposed to either de jure or de facto.

ERB: This is our old thesis.

Syarhei Chaly: It is true, but its manifestation is always different. Let’s start with Russia’s “claims” that are the easiest to refute.

Syarhei Chaly: The Russian Customs Service is trying to prevent the import of Moldavian and Georgian wines from Belarus and Kazakhstan. To close the Russian market from them, they invented that “the agreement about single customs borders for the Union member states does not cancel the federal law “On state regulation of production and distribution of alcohol” according to which any alcohol crossing the Russian border is classified as import or export and needs clearing”.

But what is this Custom Union if import and export still exist in it? This is the first thing. Secondly – why legal acts that should have been cancelled long ago are still being referred to? This law may be preserved for the states that have not joined the Customs Union. However, international agreements are agreements of a higher level and they are more important that national ones.
ERB: This is another protective measure!

Syarhei Chaly: It is even funnier as the control over the production and quality of alcohol is much stricter in Belarus than in Russia. And they admit it. Here’s a quote from the report: “High-quality vodka is produced in Belarus, good Moldavian and Georgian wine is bottled there and the level of sanitary and hygienic control is much higher than ours”.

Evidently, it is an attempt to protect the country from goods produced by the other Customs Union member states. It contradicts to the very logic of the integration unit.

ERB: However, the Russian law on production and distribution of alcohol had existed before the agreement about the Customs Union was signed. And it was in power together with the agreement for two months. Did they forget about it?

Syarhei Chaly: It seems they did.

ERB: Have they recalled it now?

Syarhei Chaly: Naturally. The thing is a lot of such small issues have been revealed recently. But the logic of the Customs Union is the abolishment of internal restrictions despite a small number of goods mentioned in the exceptions protocol of the Customs Union. But there is no alcohol on that list.

Customs Union ― for Russia

Syarhei Chaly: Russia imposed an embargo on the export of grain a bit earlier and tried to make the other participants of the Customs Union “join in”. When it failed to do it, it claimed that the documents of the Customs Union did not affect export issues in any way. They said that export in the Customs Union was a personal issue of its member states.

ERB: What does it mean to us?

Syarhei Chaly: They admitted they wanted the Customs Union to regulate import only.

ERB: It seems Belarus is very passive in the Customs Union. Russia is always dictating and is imposing its own interpretation of laws they way it wants!

Syarhei Chaly: Indeed, it turns out like that: Russia thinks the Customs Union does not function in the fields it does not want it to.

ERB: And, vice versa, it functions in the areas no one expected it would?

Syarhei Chaly: I cannot say so. However, in the fields the Customs Union does function is it adjusted to Russia’s demands and they try to combine it with other legal acts the way it is advantageous for Russians.