Belarus, Kazakhstan Lukewarm Over Customs Union

ALMATY, Kazakhstan — Russia's partners in a new customs union, Kazakhstan and Belarus, are getting cold feet about a pact designed to boost trade among the trio and add clout to their WTO accession talks.

The move to create a trade bloc with annual turnover in excess of $600 billion has met growing discontent from officials and business leaders in Kazakhstan and Belarus, who say their interests are being neglected.

"This is going to hit our wallets," said Talgat Akuov, head of Kazakhstan's Independent Association of Entrepreneurs.

Russia, the largest economy outside the 153-member World Trade Organization, announced in June that it would pursue membership only as part of the customs union with Belarus and Kazakhstan, effectively resetting 16 years of accession talks.

Kazakhstan, the world's largest uranium miner, and Belarus, an industrialized nation bordering the European Union, were originally keen to join the union to secure benefits such as cheap energy from Russia.

But Minsk, smarting from a New Year's dispute with Moscow over crude oil duties, has cast doubt over the union only months after its inauguration. Belarussian President Alexander Lukashenko said Russia-backed exceptions to trade jeopardized its existence.

"It is destined to fail if we already introduce certain exceptions," Lukashenko said last month.

Russia and its partners agreed from Jan. 1 to drop most duties on mutual trade and move toward harmonizing customs rules. From July 1, they are due to adopt a common external tariff and begin redistribution of the duties they collect.

Some analysts in Russia say the benefits, such as bigger markets for Kazakh metals and Belarussian consumer goods and foodstuffs, more than justify the cost to the smaller partners.

"Kazakhstan and Belarus benefit from the creation of the customs union because the Russian market opens up for them," said Deutsche Bank analyst Yaroslav Lissovolik.

But others say Russia is the clear winner, gaining new markets and reinforcing its regional clout at a time when its long-standing allies are seeking alliances elsewhere.

In Kazakhstan, business executives and opposition politicians are threatening the government with public protests, saying the country is losing from the agreement — a view shared by some Western economists.

Ralph De Haas and Alex Plekhanov, economists at the European Bank for Reconstruction and Development, said Russian carmakers, metals suppliers and dairy firms were among those most likely to win from the new trade deal.

"[They] face less competition in Kazakhstan and Belarus because producers from third countries [such as China and Southeast Asian countries] have been put at a disadvantage," the two wrote on the EBRD's web site last month.

Belarus has joined the union largely to save on Russian energy imports, which cost it about $10 billion a year. Kazakhstan hopes to boost exports of commodities such as metals, chemicals and coal to Russia.

Russia, however, will this year send only 6.3 million metric tons of duty-free oil to Belarus, enough for domestic consumption. Minsk must pay full duties on the additional 14 million metric tons or more that it will receive for refining and re-export.

The International Monetary Fund estimates that Belarus will actually pay $2 billion more for Russian oil this year. The issue has further strained relations between Moscow and Minsk.

"The jury is probably still out on the implications of the union for Belarus," Plekhanov said.

"Belarus' primary interest is access to Russian energy resources at Russian domestic-market, or otherwise discounted, prices. The agreement on whether this may be possible once the common customs area is formed has not been reached yet."

For Kazakhstan, the new zone has so far brought only higher prices. Central Asia's biggest economy has raised traditionally low import duties to match those in Russia, which uses high duties and import bans to protect domestic carmakers and pork and poultry producers.

EBRD's De Haas and Plekhanov said Kazakhstan, where officials still support the deal, could see "welfare losses" from the union, although some companies such as metals producers — which have strong political clout — could gain from it.

Kazakh business executives, however, were pessimistic.

Akuov, head of the entrepreneurs' association, said Kazakhstan had raised duties on 5,000 types of goods. Consumers, their incomes hit hard by the economic slump, are concerned as shops have raised prices on imports ranging from cat food to cars.