Substitute Customs Union?

22-Aug-06

The idea of a customs union among members of the Eurasian Economic Union is gaining ground, but experts say it will not develop into an alternative to the World Trade Organisation, nor will it significantly help these countries with their plans to join the WTO.

An informal summit of the Eurasian Economic Union, Eurasec, that took place in Sochi, August 15-17, approved plans to set up a customs union involving Kazakstan, Russia and Belarus. The other three Eurasec members – Kyrgyzstan, Tajikistan and Uzbekistan – are expected to join over time.

Russia had proposed the idea of a unified customs zone earlier, but the idea had always been tied to WTO accession. However, Kyrgyzstan is the only Eurasec state that has succeeded in joining the WTO, while Russia, Kazakstan and Belarus are at various stages of readiness.

Analysts maintain that the current push for a customs union within Eurasec is due to Russia’s failure to agree with the United States on WTO accession. Russia is now trying to create a regional grouping as an alternative, they say, to remove trade barriers among member states along the lines of the WTO.

But few believe the Eurasec customs union will prove an adequate substitute for the original. For one thing, post-Soviet regional organisations are notoriously unstable and have not generally proven very effective. In addition, the new union has little experience with trade, unlike the WTO.

Finally, the creation of the union will run into enormous bureaucratic difficulties, which are inevitable when trying to coordinate a large number of laws across international borders. According to some estimates, 92 joint agreements will be needed to make the customs union happen.

Nevertheless, some experts say there is an urgent need for such a union, since establishing sound trading relations with neighbouring countries could make joining the WTO less painful. Kazakstan’s domestic producers could take a beating once it opens its internal markets, forcing it to make major concession to the WTO’s dominant members.

Once the customs union deal was signed, participants in the Eurasec summit voiced the idea of opening negotiations on joining the WTO as a bloc. But analysts dismiss this possibility on the grounds that the WTO has never accepted a group of nations, but works separately with each country. The customs union, they say, is not likely to help its members become part of the WTO.

(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)