Economic development

The movement of goods across the inner borders of the EurasEC countries requires no customs clearance or declarations. ©Ministry of Foreign Affairs of Kazakhstan

What does the EurasEC customs union give us?

On 1 July 2010, the Republic of Belarus, Kazakhstan, and the Russian Federation created a customs union within the framework of the Eurasian Economic Community (EurasEC). This was done on the basis of more than twenty international legal instruments previously signed by these countries. State borders within this territory are preserved, but customs borders are eliminated, so that customs borders move to the outer perimeter of the three states. From now on, the movement of goods across the inner borders of the three countries requires no customs clearance or declarations.

This will generate considerable savings for importers and exporters within the customs union. For example, in the past, companies engaging in import-export operations to and from the Russian Federation had to issue about 160 cargo customs manifests per year. These are no longer required. Since the costs of customs broker services for issuing a single cargo manifest were in the range of 10,000 to 22,000 tenge ($66-$146), considerable savings will result. In addition, it is no longer necessary to pay 3000 tenge ($20) per day (at least) for temporarily storing goods while awaiting customs clearance. Likewise, payment of customs duties—€50 and €20 for each additional page—for issuing a cargo manifest is no longer required.

Trade between these three countries had been restricted by such licenses, quotas, and other non-tariff barriers. Many of these restrictions, such as limitation on the export of foreign exchange, have now been removed. As a result, the movement of goods from Russia to Belarus today is now similar to the movement of goods and food products from one region of Kazakhstan to another. However, non-fiscal customs control will be temporally preserved at Kazakhstani-Russian border until 1 July 2011.

Licensing has always been one of the barriers in the development of external trade. With the customs union, most of these barriers have been removed. The significance of this is apparent in the fact that, prior to the customs union, some 115 warehouses, 56 duty-free warehouses, more than 200 temporary storage warehouses, and 10 duty-free stores were licensed. Revenues accruing from licensing fees were considerable, in the €5-20 thousand range. Licensing has been replaced by registration with the customs authorities. If a company meets the requirements, it is automatically registered without a license.

Although customs clearance does not exist within the customs union, the obligation to pay indirect taxes remains. For entrepreneurs from these countries, payment of these duties will be delayed for at least a month (compared with the situation before the customs union). VAT and excise tax must be paid not when imports cross the border, but instead by the 20th day of the next month. This reduces the costs of tax compliance and frees up working capital.

Prior to the customs union, shuttle traders crossed Kazakhstan’s borders under a simplified customs regime. From 1 July 2010 this is no longer the case; shuttle traders must now submit cargo customs manifests when crossing the border. At first glance, this looks like a violation of economic rights. But this is not true. Goods worth some $4 billion are annually imported into Kazakhstan by individuals; practically each time they had to issue a cargo customs manifest. According to statistics, the simplified customs regime allowed them to only import goods worth $100 million, less than 3 percent of total imports. The cargo customs manifest regime was the most popular framework for expediting shuttle imports through customs, and so it remains.

 

Marat Aldangorovich Sarsembaev is a professor of the Daneker Academy of International Law, Astana, Kazakhstan.

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Border management is not only about security but also about freer trade and transit. © OSCE

Border management, the EU, and UNDP

Border management has become a significant line of external assistance for the European Union, and for cooperation between member states, the European Commission, and the UN, particularly in the former Soviet Union (FSU). The funding comes from European Commission budget lines devoted to implementation of regional political strategies,such as the European Neighbourhood Programme and the Central Asia Strategy. Border management has also come to represent a major focus of UNDP multi-country programming in this region. Including related drug action programmes, since 2002 UNDP has initiated work in Ukraine and the Republic of Moldova, Belarus, Georgia, Azerbaijan and Armenia, Turkmenistan, Kazakhstan, Tajikistan, Kyrgyzstan and Uzbekistan. Broadly speaking, UNDP’s work to date has been understood as successful.1 Among other things, UNDP has implemented nearly 150 million Euros’ worth of EU border management programming during the past decade.

There is no question that the EU wishes to export its ‘soft power’ via these border management programmes. But what exactly does this entail? And what dangers and opportunities are presented for the UN’s development work by this cooperation?

For some EU member states, these programmes began as an important component of a broader agenda to develop European policy and capacity on security. Border management was (and still is) seen as an acceptable vehicle for common action against mutual threats: drug trafficking, movement of Islamic extremists, etc. However, some EU Member States and Commission officials remain opposed to UNDP implementation of these programmes, due in part to concerns about trying to advance that agenda under a UN rather than directly European umbrella. The different management arrangements for the EUBAM, SCIBM and BOMCA Programmes (click here for more information on these) therefore represent various Commission attempts to satisfy the EU Member States and keep UNDP’s role to that of ‘administrative support platform’ for the application of ‘visibly’ European expertise.

Many in the Commission recognize that only the UN has the operational capacity on the ground to deliver border management assistance on a multi-country basis. However, others see utilizing development assistance to enhance security as a somewhat quixotic enterprise: Commission rules of aid assistance do not allow the transfer of key equipment or expertise; drugs and militants flow like water, taking the easiest route, so that reinforcing certain border areas merely displaces (rather than eliminates) activities of concern; it is next to impossible to establish objectively verifiable indicators in regard to countering security threats; and the whole venture may be undermined by corruption within the border services, which can only be tackled through direct budget support to pay salaries, as part of a broader developmental approach to public administration reform.

Likewise, engaging UNDP to the projection of EU soft power in the FSU risks jeopardizing the neutrality and impartiality of the UN system in the eyes of other stakeholders. Russian concerns in regard to border security in its ‘near abroad’ are inter alia expressed operationally through its leadership of the Council of Border Guard Commanders of the countries belonging to the Commonwealth of Independent States. With a Secretariat based in the Lubyanka in Moscow (to which all CIS countries have attached liaison officers), the Council meets bi-annually. It has a mandate to coordinate joint efforts of Border Guards in relation to external CIS borders, as well as the reinforcement of internal border cooperation. Specific areas of work include harmonization of national legislation on border issues, mutual exchange of information, personnel training, and military/technical policy.

Suggestions for the future

In spring 2010, the Council of CIS Border Guard Commanders signed a memorandum of understanding with FRONTEX (the EU’s Border Agency), but the technical and institutional details of cooperation with the UNDP-implemented EU aid programmes have yet to be resolved. Significant discrepancies between the regulatory and technical models for border management being offered to CIS countries therefore remain. Most CIS countries seek to strike a balance between the ‘near abroad’ and the ‘new neighbourhood’: in autumn 2010, in the context of the SCIBM project, Armenia agreed to a European integrated border management strategy only weeks after extending the presence of Russian border forces within the country for a further 39 years.

But if the dangers here are obvious, so also are the opportunities—if the EU and UNDP can agree on a different, more collaborative agenda for the export of European border management to the CIS countries. The European model of border management has twin objectives: increased security, plus improved trade and transit facilitation. These objectives are seen as mutually reinforcing: stability and security attracts trade foreign investment; freer movement of goods and people enhances stability and security.

During the Andijan events of 2005 in Uzbekistan, the local community at Karasuu, a town in the Fergana Valley divided between Kyrgyzstan and Uzbekistan, opened a border crossing spontaneously, to support continued visits of relatives and to maintain what had previously been one of the largest cross-border markets in Central Asia. The BOMCA Programme acted immediately to secure agreement from the governments to keep the crossing open, with offers to provide the necessary means to ensure security. Within weeks up to 40,000 border crossings a day were being made, including multiple trips by small traders.

Apart from the economic support this provided to households in one of Central Asia’s poorer regions (e.g., providing residents of Kyrgyzstan with fresh fruit and vegetables in the winter; providing residents of Uzbekistan with access to manufactured goods from China) BOMCA helped defuse a direct challenge to state power at a critical moment and created a safety valve in the explosive environment of the Fergana. In this way, border management programmes can allow the EU and UN(DP) to express a voice on behalf of the most vulnerable households and help governments to strike critical balances between security and development.

Border areas are often comprised of large ethnic minorities (linked to neighbouring countries), communities that are marginalized in many respects. Beyond the Fergana Valley, frozen conflicts in the FSU countries—Transnistria, Nagorno-Karabakh, Abkhazia, South Ossetia—are all located in border areas. While the full resolution of these conflicts is not in prospect, progress can be made by allowing local populations to cross borders with ID cards rather than passports. In addition to being familiar to many FSU countries from Soviet times, such systems can also be drawn from the experience of European integration. Modern European integrated border management methodologies can provide the technical means and cross-border procedures required.

Separating transit of local populations from international transit and cargo trade at border crossing points in the FSU countries could bring significant reductions in journey times and delays experienced at borders. Reconfiguring border crossing point infrastructure, providing modern equipment to automate processes, and introducing integrated border management practices such as joint control by border agencies, could further reduce travel times and delays.

Prosperity in Europe was built on the incremental removal of such barriers to trade and transit. The border management programmes could therefore do more to mobilize civil society and private enterprise—road hauliers, freight forwarders—to promote the free trade agreements signed between EU and FSU countries, as well as those trade agreements concluded among FSU countries (e.g., the EurasEC customs union). Freer trade and transit, democracy building and security can be advanced together.

Without abandoning its multi-country programming approach, the EU and UNDP may wish to consider targeting assistance more discriminately within these border management programmes. This might also help define clearer exit strategies for programming. In most FSU countries, the key border agency remains the Border Guards—a military force within each national security service. In the poorer FSU countries, transition to European border management standards will ultimately require EU direct budget support for border guard salaries. A prerequisite for this should be conversion from a largely conscript-based military force to professional civilian border police serving as an arm of the Ministry of Interior, accountable to parliaments, not presidencies.

People hate borders—uncertainties over laws and procedures, conforntation with state power, men with uniforms and guns. The Schengen arrangements therefore represent both the EU’s true soft power and a culturally iconic aspiration for many citizens in FSU countries. The EU-UNDP border management programmes can export to the CIS many of the principles and practices behind the Schengen arrangements, with enormous development potential: facilitating movements of local populations to reduce social tensions and resolve frozen conflicts; supporting trade as a smart and quick way to alleviate poverty; building democratic governance through support for civil society and private enterprise; and promoting security sector reform.

The EU-UNDP border management programmes flow from a powerful concept. They are well-funded and usually well-implemented. They should be better articulated to reflect a clearer and more developmental agenda, acceptable to all stakeholders in the FSU countries.
Philip Peirce is an independent consultant to UNDP for border management and migration projects.


1 See, for example, George Gavrilis, “Beyond the Border Management Programme for Central Asia”, EU Central Asia Monitoring, no. 11,November 2009.

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Drawing a lesson from EU experience? A boat patrolling the border between Ukraine and Moldova. © OSCE

EU cohesion policy: lessons for wider Europe?

The European Union’s cohesion policy has become one of the premier policies managed at the European level along with the Single Market, competition policy, and agricultural policy. The policy is currently financed to the tune of €345 billion. In the past the policy has provided the resources necessary to kick-start the process of socio-economic development and convergence of the less-developed countries and regions towards levels of well-being enjoyed by other EU Member States.

Ever since 1981 when Greece joined the then European Economic Community (EEC), most of the new Member States (aside from the 1996 accession that brought in Sweden, Finland, and Austria) have come from southern Europe (Portugal, Spain, Malta and Cyprus) or Central and Eastern Europe (Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Romania, Slovakia and Slovenia). All 14 of these countries entered the EU with per-capita income levels below the European average. They had centralized national decision-making and implementation structures, and had little or no experience with regional development policies. The new Member States therefore needed significant financial resources to upgrade their infrastructure networks, skill base and productive capacity in order to take advantage of the single European market.

The lessons that can be learned from the experience of the new member states in dealing with cohesion policy can be useful for the countries along the EU’s southern and eastern borders who are involved in the EU’s European Neighbourhood Policy or accession processes. The first lesson to be learned is the need to be able to effectively engage in collective decision-making. The EU does not project a single executive but rather many types of executive structures, from the European Commission to the European Council. This is true for countries dealing with the decision-making structures within the EU as well as for those interacting with the EU from the outside. For the last 12 countries that entered the EU during the last six years, accession brought with it the need to establish a working relationship with other Member States in order to fully participate in collective decision-making at the European level. In addition, they had to become comfortable with implementation mechanisms where the management of policies was predicated on the role of the Commission as policy initiator and implementer.

The second lesson is that, in addition to engaging in collective decision-making procedures at European levels, member states have to be able to engage in or feel comfortable with the use of multi-level systems of governance in the coordination of implementation of EU policies. In relation to cohesion policy, the rules and financial provisions are determined at the European level while the responsibility for day-to-day implementation, monitoring of expenditures and evaluation of programmes remains at the national and regional levels. In other words, the policy for regional development is not a national but rather a European policy. Therefore, the policy cannot be based only on a ‘two-level game’ bringing together the national and European levels in the management of the policy. Instead, cohesion policy from its beginning in 1989 has been based on a system of multi-level governance involving European, national and sub-national governments and administrative structures. Participation in the policy process is also foreseen for representatives of socio-economic groups drawn from civil society.

The third lesson is that development programmes financed by the European Commmission represent legally binding contracts between the managing authorities at the national and regional levels responsible for the delivery of the programme, and the European Commission, within the foreseen time parameter established by the policy. The rules are strict and homogenous for all countries participating in the policy. In cases of non-compliance, a system of financial sanctions may be invoked. This system of sanctions has been very effective in raising the level of compliance and reducing the graft and corruption in the use of the funds below what is present in other national policies.

The fourth lesson to be learned from the experience of Central and Eastern Europe is that large member states need to divide their country into regions for the purpose of creating planning institutions at the sub-national level to administer the regional operational programmes. In the case of Bulgaria that requirement had not been met by the beginning of 2007, and therefore the amount of money allocated to the country was reduced and the control mechanisms set up by the Commission were more stringent than was the case in other countries. In many of the new Member States the need to create institutions with the necessary planning and implementation capacity at the sub-national level was quite a challenge. So was the need to restructure national administrative systems to engage in a system of multi-level governance and carry out economic programming over the seven-year EU budgetary cycle.

A fifth lesson is the need to carry out programme evaluations. The administration of cohesion policy introduces the necessity to engage in policy evaluation as an integral part of programme implementation. During the policy cycle—that is, at the beginning, at midterm and at the end—the programme has to be evaluated in terms of its ability to reach its defined goals and to learn how the policy can be improved during the next budget/programming cycle.

A sixth lesson that can be derived from cohesion policy is that cross-border cooperation programmes involve not only national governments, but also local and regional authorities. It is the cohesion policy that introduced the experimentation of cross-border programmes, bringing together regions and local authorities in different Member States to implement a common development programme capable of taking advantage of existing local resources and promoting greater socio-economic interactions. Such programmes have been very useful in preparing the accession of new members into the EU, and have helped to eliminate impediments to the flow of goods, services, capital and people across-borders. The smooth transition to the elimination of the borders between Western and Central Europe in May 2004 was to a great extent prepared by the numerous cross-border programmes financed by INTERREG, the inter-regional cooperation programme first introduced in 1989 and extended through 2006. Cross-border cooperation is now an integral part of cohesion policy programmes, representing the third objective of cohesion policy (in addition to the competitiveness and convergence objectives for, respectively, more and less developed regions).

A final lesson to be learned is that cohesion policy has an integral part to play in developing a response to the economic and financial crisis that began in 2008. A considerable amount of the cohesion policy fund (60 percent) has been targeted toward the triple objectives of sustainable growth, increased competitiveness and job creation outlined in the Europe 2020 programme launched in March 2010. This new programme represents the continuation of the Lisbon Strategy initiated with the Lisbon Agenda in 2000 and renewed by the Lisbon II programme reformulated in 2005. As a consequence, the Lisbon Strategy and cohesion policy have come together to focus on the three objectives outlined above, and this will be even more the case in future policy cycles.

The dual examples of the cohesion policy and Lisbon Strategy, along with the Single Market and the Single Currency programmes, point to an increasing level of ‘Europeanization’ in a variety of policy fields. In order to operate effectively in the Europeanized policy making system, countries need to develop the ability to participate in collective decision-making given that in at least some aspects of economic policy EU decisions are already based on majority voting. Future member states will also find that the Growth and Stability Pact limiting budget deficits and overall debt will be more strictly adhered to than has been the case in the past. But in compensation the European Union is in a much better position to shield the countries from the risks of financial default and currency crises. These are the lessons we have learned from the Greek sovereign debt crisis within the Euro and the speculative attacks against the Hungarian forint.

Robert Leonardi is Director of the Economic and Social Cohesion Laboratory at the London School of Economics.

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