Russian Customs Union Encourages Growth in Eastern Europe

JURIST Guest Columnist Kambiz Behi of EnterInvest and JURIST Columnist Edsel Tupaz of Tupaz & Associates examine the impact of the Russian Customs Union and the effects it has had on Eastern Europe...


On January 1, 2012, Russia announced the establishment of a unified economic space with Belarus and Kazakhstan, forming a single market for goods, investment and labor. All border posts between and among the three states were removed, symbolizing an economic cooperation at its peak since the fall of the Soviet Union. This Russian-initiated plan is expected to evolve from initial economic reintegration into a political union — if not a constitutional union — with Russia as its center of political and economic power. With the probability of expansion of the Customs Union (CU) into what has been called the "Eurasian Union," closely echoing the European Union (EU) in terms of institutional framework, Russia envisions its recent integration with its neighbors as an incipient player in trade, investment and, ultimately, regional governance.

After the collapse of the Soviet Union, the reintegration of the former republics under the new framework of the Commonwealth of Independent States (CIS) had been formed within a framework of a free trade zone agreement. In 1994, 12 countries of the former Soviet Union entered into a free trade agreement [PDF], which eventually shaped the economic foundations of the Eurasian Economic Community (EEC) in 2000. Of the EEC member states, Russia, Belarus and Kazakhstan have expanded their cooperation by establishing the CU, which consolidated the economic space of the three countries into a unified regime for the liberalized movement of goods, investment and labor.

There is no doubt that the CU was patterned after the EU. Akin to the EU governing institutions, the CU is supervised by a supranational body and governing board, the Customs Union Commission (Commission). The Commission sets common external tariffs on behalf of a unified economic space and is designed to make binding juridical decisions that need no confirmation at the national level as a condition for domestic harmonization. As its first legal act, the Commission established the Customs Code of the Customs Union [PDF] (Code) that introduced uniform conditions for customs transit throughout the space of the CU. The Commission abolished customs clearance in mutual trade and gradually implemented a uniform customs regulation and free transit of goods, services and labor among the member states. While the Code provides for mutual recognition of measures to ensure payment of customs duties throughout the territory of the CU, the decisional dynamic of the Commission is shaped by the two-thirds vote share given to Russia — for a total of 57 votes — and the share given to Belarus and Kazakhstan with 21 votes each. The Commission, therefore, is weighted in favor of Russian interests. Each country, nevertheless, still has a national customs code that is, and should be, consistent with the framework of the Code.

Other republics of the former Soviet Union — either independent or members of the CIS — have also expressed interest in joining the CU. Kyrgyzstan officially requested membership in 2011 and the CU has previously invited Ukraine to join. However, conflicting viewpoints regarding membership and political complications have prevented any additional states from achieving full membership in the CU.

Another of the frameworks of the CU that resembles those of the EU is a joint account set up to collect customs duties from all trade between and among the three member states. These funds are then distributed among the member countries through quotas calculated according to the economic and social indicators of each member state. According to the tripartite setup, import duties are allocated proportionally among the fiscal budgets of Russia, Kazakhstan and Belarus at a rate of 87.97 percent, 7.33 percent and 4.7 percent, respectively. However, some of the funds are retained in the central account as a measure against local and global economic crises.

As pointed out above, the main parameter of the Code is a general rate of tariff. This rate is based on the Russian customs tariff, which is an approximation to those of the World Trade Organization (WTO). Russia is expected to enter the WTO on August 22, 2012. Russia initially demanded that the WTO accept Belarus and Kazakhstan due to regional security complications and other concerns. However, Russia eventually dropped its all-or-nothing position. Instead, Russia conceded as a requirement for WTO ascension that it would publish all CU legislation prior to its adoption and further guaranteed that it would provide time for WTO members to comment on the competency of those proposed changes.

All said, the Customs Union of Russia, Belarus and Kazakhstan is still a market-oriented reintegration program and, while modeled after EU's rule-based governance system, it lacks many of the EU's political superstructures. In a part of the world that has had a long history of social and political unrest, speaking in the vernacular of trade and investment might be seen by the West as a kind of reset of relations with the EU — even arguably following the lines of the "reset" between Russia and the US.

Kambiz Behi is a consultant at EnterInvest. Dr. Behi's interests and expertise lie in comparative law, comparative constitutional law, international law and legal anthropology, teaching law and social sciences at universities in the US, Russia and Belarus. He holds a PhD in Social Anthropology and Masters in Regional Studies from Harvard University, and a Master of Laws (LL.M.) from the University of Pennsylvania Law School.

Edsel Tupaz was a private prosecutor of the House prosecution panel in the recently concluded impeachment trial of Philippine Chief Justice Renato Corona. He is a graduate of Harvard Law School and Ateneo Law School. Owner and managing partner of Tupaz and Associates, Tupaz is a public interest lawyer whose expertise lies in comparative constitutional law, international development law, and legal theory, teaching at law schools in the US and the Philippines.

Suggested citation: Kambiz Behi and Edsel Tupaz, Russian Customs Union Encourages Growth in Eastern Europe, JURIST - Sidebar, Aug. 22, 2012, http://jurist.org/sidebar/2012/08/kambiz-behi-edsel-tupaz-russia-customs.php.


This article was prepared for publication by the staff of JURIST's professional commentary service. Please direct any questions or comments to them at professionalcommentary@jurist.org

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