“As early as next year we are hoping to sign a declaration about the formation of the Eurasian Economic Union, which can and must start operating as early as 2013,” said Putin. Created in the image of the original Common Market (a de facto mini European Union) the Eurasian Economic Union will allow the free movement of goods, services, capital and people between Belarus, Kazakhstan and Russia.

Prime Minister Putin said that the new common market will bring the former Soviet states closer, shield against global economic crises and provide shelter for prospective investment.

“For the fi rst time since the collapse of the Soviet Union, the fi rst real step has been made towards restoring the natural economic and trade ties in the post-Soviet space,” he said.

Th e agreement marks the most recent phase of integration in the economies of Russia, Belarus and Kazakhstan following the customs union which went live on July 1 this year.

Prime Minister Putin gave a clear indication of his wish to join the World Trade Organization but “we don’t intend to accelerate the process and we would not compromise our national interests in doing so.” It would appear that the Prime Minister is getting his house in order and establishing his ground rules prior to any accession of the Russian $1.5 trillion economy, the largest outside the WTO.

Th e Belarus, Kazakh and Russian Customs Union legally came into force on January 1 2010 and, practically, in July this year with the abolition of customs controls on the troika’s internal borders and the movement of customs to the new external borders.

Th e new Union has caused operational diffi culties for freight operators with both overland and sea freight being delayed.

Operators in the Russian far east have probably had the greatest challenges with ships having to pull out of ports, unable to land containers as local customs follow edicts to the letter. Th e north western regions and Baltics have had their own diffi culties but here at least customs have engaged with operating authorities in an eff ort to smooth the fl ow of goods into the country.

Th e harmonisation of taxes and duties has had no eff ect on Russia as the two other nations have harmonised their codes with the Russians. Th is has meant that prices have increased in both Belarus and Kazakhstan as the respective governments have brought their markets in line. Whilst the full implementation of the changes will take some time, some immediate eff ects were visible. Th e increase in the cost of imports led to Belarusians to try to clear customs at border points on the Baltic and Polish frontiers with expensive imports (cars etc.) before the new tariff s took eff ect. Th is caused a strain on the supply chain for fi nished vehicles and containerised freight as normal volumes spiked dramatically.

On a purely personal note, I could be forgiven for thinking I live in Belarus and not Russia, given the plethora of cars with Belarusian number plates I have seen driving the muscovite streets since July 1st. Entrepreneurial Russian citizens appear to be taking last minute advantage of the lower tax rates.

Whilst the establishment of the common market between Belarus, Kazakhstan and Russia is expected to give a boost to local business it is widely mooted that the cross border diffi culties will continue for up to six months.

As with many things in Russia it makes sense to take a holistic view of these changes and consider the reasoning behind the new common market and the ramifi cations of it. Th e new integration plans give Prime Minister Putin the opportunity

The re-birth of a nation?The new Eurasian Economic UnionPrime Minister Vladimir Putin has announced the establishment of the Eurasian Economic Union, the aim of which is the complete integration of the economies of Russia, Belarus and Kazakhstan by 2013 reports Alexander Rogan.

LogisticsLeaderswww.logisticsleaders.org

of bringing former Soviet states closer to Russia, providing security and easier access to markets. Th e removal of trade barriers brings both Belarus (population 9.5 million and GDP $130 billion) and Kazakhstan (population 15.5 million and GDP $196 billion) closer to Russia and further away from the world markets. Both countries were weakened by the 2008/2009 fi nancial crisis and were looking for fi nancial stability. Th e shared Soviet-era infrastructure, Soviet design and the common geography that linked the economies of Russia, Belarus and Kazakhstan meant that the ratifi cation of the economic union was not diffi cult politically.

Belarus is in meltdown and underwriting its Russian loans with strategic assets as the Russian government asserts greater control on its neighbour. Consumer prices in Belarus rose 8.6% month-on-month in June, bringing the year-on-year price increase to 43.8%.

Th e Kazakh banking sector is still in a weak state and would struggle to survive another crisis, despite the oil and gas reserves. If a worst-case scenario led to a Kazakh default, the follow-on removal from international money markets would leave Kazakhstan with few fi nancial alternatives outside the new customs union. Th at said, the Kazakhstan government devalued the Kazakh currency to stabilise market pressures and stimulated the market with a $19 billion injection. Rising oil prices have revived the economy. Competition to Russia may arise as the Kazakh government has started a ambitious diversifi cation programme, aimed at decreasing its dependency on natural resources by developing targeted sectors like transport, pharmaceuticals, telecommunications and food processing.

Are we seeing the beginning of a nation’s rebirth as Prime Minister Putin brings former Soviet Union states back under the infl uence of Russia? Th at Russia has stated its intention to help Kyrgyzstan (population 5.5 million and a GDP of $12 billion) and Tajikistan (population 7.6 million and GDP of $14.7 billion) join the Eurasian Economic Union shows that Russia’s strategic interest is not totally economic. Kyrgyzstan and Tajikistan are economically irrelevant; neither adding fi scal value to the EEU nor rewarding Russian markets. Both entertain US and Chinese infl uence, a long term regional Russian bête noire and are drug smuggling routes from Central Asia to Russia. If the countries accede to the EEU, Russia could impose strict border controls and eliminate the rampant institutional corruption.

Th e next Russian target for the Union is Ukraine. Having a stronger economy than either Kyrgyzstan or Tajikistan, its strategic position and importance put it in the middle of a struggle between Russia and the European Union. Russia would like to amplify its authority over Ukraine by having it join the customs union. Whether or not this transpires, every advance by the customs union reinforces Russia’s

regional position. On the one hand the Union is promoting the benefi t of business for all companies within the troika, whilst Prime Minister Putin is promising to make Russia the most favourable business environment amongst the three. Facing the possibility that Russian companies may look to relocate to benefi t from lower costs, Prime Minister Putin said, “I do not rule out that we will face a real threat that some companies will be re-registered in Belarus or Kazakhstan. We are perfectly aware of that. Th e Russian government will, therefore, try to create competitive conditions to attract business to Russia... Th is will already be the fourth stage of integration of Russia, Belarus and Kazakhstan...We have every reason to believe that the Eurasian Economic Union will start working in 2013.”

Against the back drop of Russian hegemony is the creation of a market of 160 plus million customers, before the Ukrainian and central Asian state populations are considered. Given the desire by the Russian government to boost employment, attract inward investment and modernise Russian industry, as seen by the Russian government Decree 166 and the huge upswing in automotive production, the question could be posed ‘where will the new product go?’

Th e answer is within the new Eurasian Economic Union.

20-21 September - Swissotel Moscow

All eyes are once again on Russia as car sales forecasts blossom. Th e Automotive Supply Chain Conference, Russia will allow delegates the opportunity to drive their businesses forward by listening to supply chain management and logistics experts, networking with decision makers from inside and outside the market and building relationships with the resurgent manufacturing sector.

Th e Automotive Supply Chain Conference, Russia will examine the ramifi cations of the new measures for all sectors of the industry. OEMs, component manufacturers and supply chain service providers will all vie for the new opportunities which domestic expansion will provide. Capacity, both in manufacturing and transportation, may be an issue as will the never-ending confusion surrounding the Russian customs system. Th ere will be increased demands on the transportation infrastructure which will need to keep pace with the market growth.

Find out more at www.automotivesupplychain.org

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