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 Licensing has been replaced by registration with the customs authorities.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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Kyrgyzstan’s economic situation would worsen considerably if the country loses access to its current duty-free supply of oil products and other raw materials from Russia and Kazakhstan. © OSCE/Roel Janssens

The possible impact of the EurasEC customs union on Kyrgyzstan

The potential impact of the Eurasia Economic Community’s (EurasEC) customs union, the customs code for which formally came into effect for Belarus, Kazakhstan, and the Russian Federation on 5 July 2010, has been widely discussed in Kyrgyzstan. Before drawing conclusions about the advantages and disadvantages of Kyrgyzstan’s possible accession, two issues should be emphasized. First, this topic should be addressed from a purely pragmatic point of view, to draw analytical conclusions on the basis of specific economic indicators. Second, one should thoroughly examine the actual operation of the customs union. At this point, I agree with Muktar Djumaliev (deputy head of Kyrgyzstan’s presidential administration) that at present the government of Kyrgyzstan cannot even negotiate with the customs union, because we do not know enough about it.

Kyrgyzstan’s foreign trade policy is quite liberal in terms of customs duties; in 2009, the average import tariff was slightly over 5 percent. Practically no export duties are applied whatsoever. According to official statistics, Kyrgyzstan’s foreign trade volume in 2009 was $4.4 billion, of which imports constituted around $3 billion (68 percent) and exports $1.4 billion (32 percent). Customs union countries were responsible for 41 percent of Kyrgyzstan’s trade volume (50 percent of imports and 23 percent of exports). Whereas the share of imports from these countries has been relatively stable, the share of exports purchased by customs union countries shows a noticeable downward trend. It should be emphasized, however, that official statistics do not give a full view of Kyrgyzstan’s foreign trade situation, because significant volumes of goods are imported under a simplified customs clearance scheme, which distorts reported import prices.

Customs union: Implications for members and non-members

What does the creation of the customs union mean for member countries? The supranational Customs Union Commission was created in order to coordinate the activity of member countries. Decisions are made according to a simple majority of votes. These are distributed as follows: Russia—57 percent, Kazakhstan—21.5 percent, and Belarus—21.5 percent. Customs union revenues are to be divided as follows: Russia—87.7 percent, Kazakhstan—7 percent, and Belarus—5.3 percent. The single value added tax rate (which has not yet come into force) is set at 17 percent. This suggests that Russia has a preemptive position within the customs union. This may be because the size of these three economies are quite different: Kazakhstan’s GDP in 2008 was only 8 percent of Russia’s, while Belarus’s was only 4 percent. This suggests that Russia’s interests may prevail in the customs union’s trade policies: some 92 percent of the common external tariff rates are based on Russia’s tariff rates. In addition to protecting Russian producers from imports, this regime will give consumers in other customs union countries incentives to switch to Russian products.\

Analyses conducted by the Asian Development Bank, the European Bank for Reconstruction and Development, and USAID indicate that, because of significant differences in economic structures, tariff rates in Kyrgyzstan and the customs union countries vary greatly. As the below table shows, Kyrgyzstan’s tariff rates are concentrated in groups at which lower duties are applied. Moreover, in addition to these ad valorem rates, the customs union’s common external tariff applies specific rates for 5.3 percent and combined rates for 2 percent of total imports. By contrast, Kyrgyzstan applies specific tariff rates for only 1 percent of total imports, and combined rates for 1.3 percent of imports.

Table 1: The share of  imports falling under different tariff rates in the Kyrgyz Republic and the EurasEC customs union

* Under the customs union’s common external tariff

These differences reflect inter alia Kyrgyzstan’s membership in the World Trade Organization: upon its WTO accession Kyrgyzstan committed itself to maintain its average tariff rate at a reference level of about 7.7 percent. Moreover, were Kyrgyzstan to consider joining the customs union and adopting its (higher) common external tariff, it would have to coordinate this decision with other WTO members. [Editors note: none of the customs union member countries have acceded to the WTO.] However, the value added tax rate on imports under the custom union’s customs code will be 17 percent—which will also apply to imports from Kyrgyzstan (where the VAT rate is 12 percent).

Kyrgyzstan’s accession to the customs union would imply the adoption of its common external tariff—the average value of which is 10.6 percent, compared to Kyrgyzstan’s average customs tariff rate of 5.1 percent in 2009. Such a hike would significantly reduce Kyrgyzstan’s trade with other countries, while increasing trade with Russia and other customs union members. In addition, Kyrgyzstan’s average tariff rate does not reflect the considerable volume of imports from China carried out based on simplified customs clearance procedures with a very low rate.

Kyrgyzstan’s Ministry of Economic Regulation has calculated that 34 percent of total imports face duties that coincide with those under the common external tariff. Some 21 percent of imports face duties that are roughly comparable to the common external tariff rates, while 43 percent do not coincide at all. Changes in these duties would need to be negotiated with the WTO, which could entail significant technical difficulties. Accession to the customs union could also reduce Kyrgyzstan’s budget revenues and increase inflation. More generally, Kyrgyzstan would have to revise the basic directions of its trade policy to reflect the interests of bigger countries, primarily Russia. Favourable conditions for imports, including from China, would likewise be revised, significantly reducing the reexport of Chinese goods.

On the other hand, Kyrgyzstan’s accession to the customs union could have a number of positive implications. These reflect the fact that Kyrgyzstani producers would obtain preferential access to the large regional market of the custom union countries, providing scale advantages for local companies. It would also make Kyrgyzstan more attractive for foreign investments, from Russia and Kazakhstan and from non-customs union countries.

What happens if Kyrgyzstan does not join the customs union? This would depend in part on whether pre-existing bilateral and multilateral free trade agreements with these countries, which provide for most favoured nation (MFN) treatment for Kyrgyzstan’s exports, will continue to be honoured. The possible revision of bilateral MFN agreements and of the 15 April 1994 agreement among member countries of the Commonwealth of Independent States (as amended as of 2 April 1999) could be quite serious in this regard. Moreover, Kyrgyzstan’s economic situation would worsen considerably if the country loses access to its current duty-free supply of oil products and other raw materials from Russia and Kazakhstan. Non-accession could also slow Kyrgyzstan’s integration into post-Soviet regional entities, such as EurasEC and the CIS. Much therefore depends on the government’s negotiations with its main trade partners, Russia and Kazakhstan.

Possible recommendations

WTO membership does not automatically preclude membership in various customs unions, because the WTO’s main goal is to reduce barriers to international trade. As such the issues discussed here would become the subject of negotiations and consultations for the government of Kyrgyzstan. The country’s most favourable option could therefore be in pursuit of a gradual, step-by-step accession in the customs union, as certain conditions would be met. One of these would be the eventual accession of Russia, Kazakhstan and Belarus to the WTO—which, most probably, is a matter of time. These countries’ WTO accession would facilitate the joint resolution of a number of issues associated with Kyrgyzstan’s prospective customs union membership, such as compensation for increases in customs tariffs. Prior to the possible WTO accession of Russia, Kazakhstan, and Belarus, Kyrgyzstan could reasonably request observer status in the customs union. This would demonstrate good faith on the part of the Kyrgyz Republic, and minimize the risks (for Kyrgyzstan) associated with the customs union’s creation. During this time, Kyrgyzstan should seek to boost investment from WTO countries, including from China in order to make good use of its comparative trade advantages.

Talaibek Koichumanov is Head of the Secretariat of the Business Development and Investments Council under the Government of the Kyrgyz Republic.

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