Space as economic category

[b]2010 was a landmark year for the economic integration of Belarus, Russia and Kazakhstan. Last July, a single Customs Code came into force for the three countries, forming a common market of 170m people, with commodities freely crossing our borders, without control or customs clearance [/b]The next stage of integration is the Single Economic Space, which formation should be completed in 2011. The SES envisages free movement of goods, services, capital and labour, in addition to a shared macroeconomic policy. In December, Alexander Lukashenko, Dmitry Medvedev and Nursultan Nazarbayev signed documents on the SES formation, in Moscow. “We’re stating the creation of a single economic space,” noted Mr. Lukashenko at a press conference. “We’ve ensured free competition for our enterprises in Russia, Kazakhstan and Belarus.”
2010 was a landmark year for the economic integration of Belarus, Russia and Kazakhstan. Last July, a single Customs Code came into force for the three countries, forming a common market of 170m people, with commodities freely crossing our borders, without control or customs clearance

The next stage of integration is the Single Economic Space, which formation should be completed in 2011. The SES envisages free movement of goods, services, capital and labour, in addition to a shared macroeconomic policy. In December, Alexander Lukashenko, Dmitry Medvedev and Nursultan Nazarbayev signed documents on the SES formation, in Moscow. “We’re stating the creation of a single economic space,” noted Mr. Lukashenko at a press conference. “We’ve ensured free competition for our enterprises in Russia, Kazakhstan and Belarus.”
Last December, 18 documents relating to the SES formation were ratified by the Belarusian Parliament. The package included agreements dealing with the migration of labour, principles
of currency policy, unified principles and rules of competition, as well as those relating to trade and investments, and an agreed macroeconomic policy. In December, the President of Belarus, Alexander Lukashenko, signed a ratified document making Minsk the first among its partners to have completed interstate procedures relating to the formation of the Single Economic Space.

From Lisbon to Vladivostok
The European Coal and Steel Community took six years to become the European Economic Community and another 35 to become the European Union. Comparatively, the SES creation by Belarus, Russia and Kazakhstan is progressing at a record pace. Unlike the EU, the SES doesn’t envisage political union. The supra-national bodies of the Single Economic Space (particularly the Inter-state Commission on Trade and Tariffs) will be implementing a single competitive policy and single tariff policy on natural monopolies, as well as other economic policies. SES participants will remain politically sovereign states, with each pursuing its own domestic and foreign policy. The project is exclusively aimed at economic integration.
What benefits will the business communities of Belarus, Russia and Kazakhstan receive from the SES? Experts point out that working conditions will improve, with existing tariff and non-tariff barriers being eliminated. By setting up a company in Belarus, national or foreign investors receive access to a huge market of 170m — from Brest to Almaty and Vladivostok. Risks relating to business are reduced, due to the appearance of international legal guarantees, with legislation governing the enlargement of business structures, as well as mergers and acquisitions.
Such legislation has drawn on the integration experience of the European Union, as well as the norms and rules of the World Trade Organisation, allowing the future opportunity of expanding the union to include other states (as fixed in the Declaration on the Single Economic Space Formation, adopted in December).
Kyrgyzstan, Tajikistan, Armenia and Ukraine have already expressed interest in participating in the Single Economic Space. “We’re stretching a hand of co-operation to our closest neighbours and friends, creating conditions for them to modernise their economies and improve the quality of life of their people,” Dmitry Medvedev has announced, explaining the ideology of the SES.
The presidents of Belarus and Russia also stress the possibility of integrating the SES with the EU. Although economic alliance from Lisbon to Vladivostok now seems a distant prospect, who knows what may happen?

Without exemptions or restrictions
Belarus is a consistent supporter of integration within the post-Soviet space. The SES could become the first truly successful integration project. Some call this initiative the last attempt of the former USSR republics to demonstrate real integration. In one word, much is on the line. Minsk believes that that success of the Single Economic Space depends on how integrated it becomes in practice. According to Belarus, all exemptions and restrictions should be eliminated. Prices and conditions for energy supplies are especially vital. From January 1st, 2010, Russia began to exempt Belarus from export duties on oil supplied for processing and further export abroad. Official Minsk points out that duties inside the operating Customs Union contradict the logic of the association.
In December, Alexander Lukashenko and Dmitry Medvedev found a solution to the oil issue. From January 1st, 2011, Russian oil will be supplied to Belarus duty free. Meanwhile, Belarus has pledged to transfer to the Russian budget 100 percent of export duties for oil and oil products supplied to third countries. Such a scheme meets the idea of the Single Economic Space and is simultaneously beneficial for Minsk. Most of the Russian oil processed at Belarusian oil refineries is made into diesel fuel, petrols, oil-fuel and oils. Ready-made oil products are exported beyond the borders of the Customs Union. Since duties on oil products are lower than those for crude oil, from 2011, Belarus will save up to $4bn annually, according to experts.

From particulars to general rules
As soon as the SES becomes operational, conditions for natural gas supplies should also be unified. In 2011, Gazprom gas supplies to Belarus will stand at $230 per 1,000 cubic metres. Valery Golubev, Deputy Chairman of Gazprom’s Management Committee, notes that ‘since Belarus has joined the single Customs Union and the Single Economic Space, contracts for 2012 will be signed relying on other principles’. According to him, the average European price will be viewed from this basic price, with customs duties and transit costs reduced from there. If this formula had been applied in 2011, gas prices for Belarus would have been $30 cheaper.
Minsk has underlined many times that the major issue isn’t the price itself, but the principle of unified price formation in Belarus and Russia. Gas may be cheap or expensive but should be equally cheap or equally expensive for both Belarusian and Russian enterprises. Minsk is keen to see Russia move quickly to ‘equal-profitability’ prices for external and domestic consumers. For example, taking into account that gas is a dominating element in the cost of creating electricity or cement, non-observation of the principle of ‘equal profitability’ deliberately creates unequal conditions for Belarusian and Russian companies. This has hampered economic integration within the Union State of Belarus and Russia. Minsk hopes that the fundamental gas issue will be successfully resolved within the SES. Arguments on common profit should outweigh narrow corporate interests.

By Vitaly Volyanyuk
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