De-facto European integration
[b]Belarus strengthened by greater links to the global economy[/b]A landmark event took place in early 2011 when Geneva hosted the first round of talks on a free trade agreement between Customs Union member states (Russia, Belarus and Kazakhstan) and the European Free Trade Association (EFTA). This agreement would amount not just to the creation of a new European bloc but to a true single economic space. Whatever speculation exists regarding Belarus’ ‘closedness’ or ‘isolation’, the facts indicate otherwise. The Director of the Foreign Ministry’s Foreign Economic Activity Department, Valery Sadokho, headed the Belarusian delegation in Geneva (February 4, 2010, appointed Ambassador Extraordinary and Plenipotentiary of the Republic of Belarus to Vietnam by the Presidential Decree) . He believes that it is impossible to impede progress where mutual interests exist. He started his speech with a positive piece of news: talks in November on the conclusion of a free trade agreement with EFTA will be held in Minsk.
A landmark event took place in early 2011 when Geneva hosted the first round of talks on a free trade agreement between Customs Union member states (Russia, Belarus and Kazakhstan) and the European Free Trade Association (EFTA). This agreement would amount not just to the creation of a new European bloc but to a true single economic space. Whatever speculation exists regarding Belarus’ ‘closedness’ or ‘isolation’, the facts indicate otherwise. The Director of the Foreign Ministry’s Foreign Economic Activity Department, Valery Sadokho, headed the Belarusian delegation in Geneva (February 4, 2010, appointed Ambassador Extraordinary and Plenipotentiary of the Republic of Belarus to Vietnam by the Presidential Decree) . He believes that it is impossible to impede progress where mutual interests exist. He started his speech with a positive piece of news: talks in November on the conclusion of a free trade agreement with EFTA will be held in Minsk.
Mr. Sadokho, please tell us about the talks. What did you feel was the attitude of the European interlocutors?
I was very pleased to see a high level of representation, a clear organisation of the negotiations, and a warm and constructive attitude from everyone who took part in the talks. EFTA’s delegation was led by the Director General of the Norwegian Ministry of Trade and Industry’s Department, Jan Farberk, with over 40 delegates and experts representing the EFTA member states (Norway, Switzerland, Iceland and Lichtenstein). Of course, Norway and Switzerland play a major role here as these countries are 29th and 20th respectively in the global ranking of foreign trade volumes.
These countries are not EU members so what is their relationship to the EU?
Lichtenstein and Norway are members of the single market, through membership of the European Economic Area (EEA). The EU and EFTA signed an agreement on the establishment of the European Economic Area in 1991. Switzerland has a similar relationship, having concluded a number of bilateral agreements on a free trade zone.
In addition, the European Free Trade Association has concluded free trade agreements with many countries and regional associations around the world, and EFTA’s member states have been members of the WTO since 1995.
Why are they interested in the Customs Union, which is a relatively new entity?
Their interest is primarily based on the Customs Union’s size — 140m people in Russia, 16m in Kazakhstan and 10m in Belarus add up to a huge market that is of great interest to EFTA. As I’ve said, EFTA has signed free trade agreements with a number of states, including in Africa, Latin America and Asia. The organisation is constantly seeking to develop.
The interest is mutual, it should be added. We need new technologies and let’s not forget that Norway and Switzerland are highly developed countries. A Belarusian company, Belkommunmash, and a Swiss company have already agreed to assemble Belarusian trams in Switzerland. Our companies — Belkommunmash in particular — are striving to create the machinery of the future in order not to stagnate. They aim to co-operate with Western companies, using the most advanced technical solutions. I have no doubts that the interest is also mutual as regards the establishment of a free trade
zone. For Norway, Switzerland, Iceland and Lichtenstein this will mean the opening of new eastern markets. For us, it will mean our turnover with the EFTA states reaching $0.5bn — four to five times more than with some states in Central and Eastern Europe. Truly, the interest is mutual; EFTA has expressed its readiness to establish a free trade zone with us in the future. The talks have reached an intermediate stage which involves finalising the details of the agreements reached so far.
Does this mean that the Customs Union is viewed as a potential partner?
No doubt. It should also be mentioned that, in addition to the direct participants in the negotiations, many experts attended the talks. Norway sent fifteen experts and Switzerland — eighteen. This underscores their very great interest. We discussed the core issues at a plenary session, while discussions on trade in industrial and agricultural goods, trade barriers, sanitary and phyto-sanitary measures, rules on the origin of goods, intellectual property and simplification of trade procedures were conducted at the expert level. EFTA came up with quite a striking new acronym for us, which was widely used by all parties during the talks — RUBEKA. Explanation of the acronym is presumably not necessary.
In the first round of negotiations, we made a lot of progress on the issue of trade. We discussed the issue of exemptions, taking into account the structure of our trade. Norway of course is concerned with the trade in fish. Russia has great fish resources of its own and, naturally, is cautious regarding this issue. I said that Belarus is not afraid to discuss such tricky issues. We are convinced that joint approaches can and will be found to all of the challenges that will undoubtedly arise.
Is this our first experience of integration with European states?
I’d rather not equate this experience to dealing with the European Union. Iceland, Norway, Switzerland and Lichtenstein are not EU members but enjoy free trade with the EU; they wish to see a similar relationship with the Customs Union. That is an attractive model which is also very instructive. In our talk with the Norwegian Ambassador, she noted that they are aware that Belarus has some problems with the EU; however, she added that ‘we are interested in mutually beneficial trade and economic co-operation and we will follow this path with you’.
This is truly a European experience for Belarus. The EFTA states have close ties with the EU and their trade turnover reaches about 70-80 percent. EFTA and the EU apply almost identical sanitary and phyto-sanitary regulations in trade. Similarly, we are close to achieving European levels of quality in our products and competitiveness. This is why we are interested in application the same regulations.
Moreover, it’s very important to us that co-operation with EFTA be based on WTO agreements, since the EFTA member states are also members of the World Trade Organisation and observe its rules. Their common approach to free trade has already been tested through their adherence to WTO rules. We are very much interested in this as well, as we also are on the path to joining the WTO. The organisation establishes clear rules for all of its members. Do you know that 155 states are already WTO members? They are all satisfied with these common rules. Why should we dislike them? We cannot claim that rules applied globally will be harmful to us. Of course, any situation has its pros and cons. However, it is better to know which rules most countries follow, while assessing the risks and advantages to us. For example, transparency is an important criterion for investors. If a country is a WTO member, then its economy is transparent. When that is the case, there is no need to prove anything: membership of this trade organisation speaks for itself.
Through this experience are we creating the basis for operating in the global market?
Really, for Belarus and our Customs Union partners it’s very important to start the process so that the world learns that we are open to co-operation and integration.
This is not the first time that the Customs Union has attempted to establish a free trade agreement. We are negotiating with Serbia, Montenegro, Egypt, Syria, Vietnam and New Zealand. A dozen more countries will soon be added to this list, indicating the huge level of interest being shown in the Customs Union. This interest inspires its members to strengthen it further and make it even more attractive to potential partners. Of course, other countries are looking at our experience with EFTA, which is the oldest and most respected European organisation, with huge international prestige.
Our talks with EFTA, proceeding from the WTO agreements, have another positive side. They are a stimulus for all of us, including our ministries and exporting companies, to acquire a more detailed understanding of the WTO’s major requirements. During our work in Geneva we realised that we can achieve co-ordinated solutions to all problems. Conditions for the development of mutual respect and trust are created, even in everyday life, when people become acquainted and establish close contacts. We’ve established common approaches to dealing with issues and outlined a schedule for further work. The next round of talks will take place in Almaty, in April. Geneva will host the following round in August and in November we’ll see the EFTA representatives in Minsk. This is expected to be a very significant year for our co-operation with EFTA.
Moreover, we hope that signing a free trade agreement with EFTA might coincide with our joining the WTO.
A Single Economic Space is being established within the Customs Union, analogous to the European free trade area. Do you believe it is possible that a single integrated association will appear in the future, uniting the Single Economic Space and the EU?
Being Director of the Foreign Economic Activity Department, I don’t feel authorised to discuss politics. However, I can say that the first step would be for our states to join the WTO. We will then need to deal with the division of labour — including within the Customs Union. We have to establish joint structures, as transnational companies do. Belarus already has powerful enterprises, so efficient production clusters could be built on the basis of those.
Meanwhile, oligarchic unions exist in Russia. They are probably not interested in modernisation of the Belarusian economy...
What matters is that we are interested. We have specialists, highly professional engineers and technicians who work at companies employing many thousands of people. But, at present, it’s impossible to establish a new manufacturing facility in any region, from nothing; a production school is needed. Furthermore, the Customs Union’s member states should pool their capital in order to strengthen their position on the global market.
Does this mean that the fastest route to European integration for Belarus is through membership of the Customs Union and the Single Economic Space, rather than through independent efforts?
The negotiations have demonstrated our mutual interest with EFTA in establishing a free trade area. Since these states are situated in Europe, then, naturally, we are becoming more integrated into Europe.
Some analysts, in assessing Belarus’ membership of unions created by Moscow and Vladimir Putin perso-nally, warn of the danger of dependence on Russia. What do you think of this?
Such theories may exist. However, it seems to me that we need to build on existing and potential trade and economic agreements. If you look at the history of the EU, you may recall that it was not established by politicians. In fact, the coal, ore and metallurgical industries of six European nations established the European Coal and Steel Community in 1951, having decided to establish a common market. This is why we should proceed not from political impulses (which may be of a temporary nature) but rely on economic and investment co-operation, building on our potential in order to move forward.
How many foreign firms operate in Belarus?
830 foreign organisations are registered with the Foreign Ministry of Belarus, with 44 percent of them coming from the EU. I think that such famous German firms as BASF, BAYER, BERLIN-CHEMIE, BOSCH, MOTOROLA and STRABAG have opened offices in Belarus not out of idle curiosity but in order to strengthen our mutually beneficial co-operation. The list is quite long and includes famous companies from France, the UK, the Netherlands and many other EU states.
What can you say about companies receiving foreign investments? In your opinion, can foreign investors refuse to co-operate with Belarus because of certain political conditions?
Over 5,000 businesses with foreign capital operate in the Republic of Belarus, including 2,800 joint ventures and about 2,400 foreign companies. 1,700 of them come from the EU. Out of those, Germany and Poland have 345 companies each. The USA is in third position, with 327 firms (both joint ventures and foreign companies).
Joint companies have been established with German MAN Concern (producing cargo trucks) and Carl Zeiss (manufacturing optics). Additionally, such foreign companies as Coca-Cola Beverages Belarus, MacDonald’s, Unomedical (producing medical goods), Chess-Bel (oil products processing), Fresenius (medical equipment), Heineken (non-alcoholic and low-alcoholic drinks) and others operate in the Republic. Famous Russian companies also invest in Belarus, such as Lukoil, Slavneft, Itera-Group, Gazprom JSC, Gazprombank, MTS JSC and others.
Will investors divest themselves so easily? Never. Business follows profits, particularly where there is no criminal environment. Belarus should be striving to create ideal business conditions, which it is doing. According to the World Bank’s annual ‘Doing Business-2011’, Belarus was acknow-ledged as a leading global reformer of the last five years; the country is now among the top three most active reformers, based on its reforms in the business sector.
Which machines are most popular among Belarusians? Those made by Bosch, Siemens and Philips. Our streets are full of Mercedes, BMWs, Volvos, Opels and Volkswagens. About twenty years ago, no foreign cars were seen in our streets, while Belarusians could only dream of Western white goods. These examples show that Belarus is becoming integrated into the international economy.
Which countries invest most heavily in Belarus?
Russia is our major investment partner, accounting for over half of all investments.
What about European capital? Is it active in Belarus?
Austria, the Netherlands, Cyprus, the UK, Switzerland and Germany lead, primarily injecting capital into infrastructure, modernisation of enterprises and the service sector. Our Government has developed a logistics system development programme, running until 2015. Belarus is actively working with investors from Poland, Lithuania, the Czech Republic, the Netherlands and other European states on projects under the programme. For example, AOI NV of Belgium is investing in the construction of a multi-modal logistical centre near Minsk National Airport. We are also building hotels for the 2014 IIHF World Championship.
What were the foreign trade results last year?
We primarily exported to Russia, with exports reaching $9.8bn, then to the Netherlands ($2.7bn), Ukraine ($2.56bn), the UK ($984m), Latvia ($930m) and Poland ($886m).
These figures represented a rise (over 2009’s figures) in Belarusian exports to Russia of $3bn (or 1.46-fold), to Ukraine — of $870m (1.5-fold), China — $300m (2.7-fold), Brazil —$260m (1.58-fold), the UK —$180m (1.22-fold), Kazakhstan —$150m (1.48-fold) and Poland —$63m (1.1-fold). Belarusian exports also registered a significant growth in trade with Venezuela, Serbia, Iran, the Czech Republic, the USA, Estonia, Canada, Turkey, Vietnam, Azerbaijan, Argentina, Armenia, Austria, Sweden and Italy.
Russia apart, we witnessed large sales of our MAZ vehicles in Ukraine, in addition to high turnovers from Amkodor, Kommunmash, Gomselmash. We also export elevators and food to Ukraine.
We sold $7bn of machines and equipment to the EU, mostly to Poland, Lithuania, Germany, the Czech Republic and the UK. Lithuania primarily bought machinery for cargo handling, including cranes and loaders. Germany purchased our cranes, loaders, tractors and electric equipment, while the Czech Republic imported our components for cars and tractors. Hungary bought tractors and tractor-trucks (accounting for 74 percent of the volume of our mutual trade), while France purchased spare parts for cars and tractors (55 percent).
The figures you’ve mentioned indicate that our economy is doing quite well. We are selling complex machinery to Western Europe...
We are competitive, but there is no need to increase volumes for all products. As regards food, our products offer good value for money. Remember when we had problems with Russia, when it blocked access to its market of Belarusian milk and sugar products? We quickly found new export markets — in Pakistan, Indonesia, Venezuela, and elsewhere.
In addition, we are seeing not only a diversification of markets, but also a change in our revenue sources. Our Silicon Valley (the High-Tech Park) now exports $158m of services; 50 percent of our intellectual product goes to the USA and 30 percent — to the EU.
With what product is Belarus associated? Is it the ‘Belarus’ tractor? Or the software sold to the USA and Europe by our young computer geniuses from Minsk? What products should Belarus promote on the global market?
The marketing of a country is an enormous task, on which research institutes, promoters and professional organizations are all focussed. Belarus is positioned as a stable and tolerant country, where everything is aimed at sustainable development and at saving and improving the environment. However, sometimes a minor detail can eradicate or, conversely, significantly enhance the attributes of a state. A famous American singer was once invited to Israel and when she arrived, she exclaimed, “It’s so wonderful to breathe the air here!” Those words pushed Israel to the top of the tourist ratings.
I imagine guests arriving in Belarus for the World Championship; we win every round and all the visitors realise that Belarus is great at generating talent! But seriously, such events are a kind of debutantes’ ball for the country. We are preparing hard for it, at every level. This will be Belarus’ global premiere.
Given its geographical position, Belarus is very open to guests — in the widest sense of the word. I imagine that the country’s image has its roots in this hospitality to outsiders ...
Our country is situated between two of Europe’s largest regional associations — the Customs Union and the European Union. The role of Belarus as a transit state takes on a greater significance in this context. As a result, Brest and Grodno regions are ideal locations for the construction of logistical centres, storehouses, refrigerated faci-lities and infrastructure. Commodities will travel through this area, from West to East and vice versa, requiring customs clearance, packaging and storage. Financial services will also be needed. Belarus is gearing up, with higher educational establishments already training would-be logistics specialists. The companies situated in these areas will benefit from the deve-lopment of the Customs Union. When Poland failed to join the EU, Italian and German investors constructed large warehouses near Bialystok, anticipating that a new border would be created there. The same is likely to happen in Belarus.
Are you sure that this will be an economic boom?
This will be a new reality.
By Nina Romanova