The economic downturn has changed the structure of commercial exchanges and that of the tariff policy both regionally and worldwide, which has determined a chain shift of freight volumes to different areas. In this context, regional economic integration brings benefits to member states helping increase national budgets and the volumes of carried freight.
Worldwide, the economic crisis has produced a 10% drop in the volume of commercial exchanges and services in 2008-2009. In 2011, trade began to recover recording an 8.2% growth compared to 2008. Geographically, the growth performance is divided as follows: if in 2008, emerging economies represented only one third of the world trade, in the next 3 years, they had a contribution of 60% to increasing the import of goods and services and of 52% in exports. This increase has consolidated an obvious tendency manifested before the crisis period and is expected to become more important in the future: worldwide trade will intensify and will focus in and between emerging countries, informs “The Global Enabling. Trade Report 2012” conducted by the World Economic Forum (WEF).
However, “the crisis in the Eurozone has marked a decline in exports at the level of various transition countries, especially for European and Baltic countries and for South-Eastern Europe, ever since 2011. In turn, eastern countries have enjoyed a growth in exports by mid-2012 before the drop in the oil prices. The oscillation in the performance of exports in Central Asia is assigned to the different levels of exposure to the Eurozone and countries with more intense commercial connections with the Eurozone have experienced severe drops in exports, compared to the countries whose links to the Eurozone are weaker”, states the EBRD in its analysis “Integration across borders” (2012).
In this context, the latest development concerning regional economic integration is creating inside the Eurasian Economic Community (EurAsEC which includes Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan) the Customs Union and the Joint Economic Area, which includes Russia, Belarus and Kazakhstan, which in turn led to the establishment of supernational institutions, including that of the Eurasian Economic Committee. At the level of the three countries, domestic borders have been eliminated and within the Customs Union import charging incomes have helped increase national budgets to 88% (Russia), 7% (Kazakhstan) and 5% (Belarus), but under the reserve of periodical revisions. The Union is open to other countries that share borders as well and Kyrgyzstan and Tajikistan are among the countries invited to join it. “We are hoping to soon finalize the process of ratifying Kyrgyzstan and Tajikistan, which will speed up trade in the region. The agreement is conceived to eliminate mutual trade between the countries in Central Asia and to implement infrastructure development projects and facilitate customs procedures for the traffic of goods”, said TimurZhaksylykov, Kazakhstan’s Minister of Economic Deve-lopment and Trade. The other neighbouring countries (Armenia, the Republic of Moldova, and Tajikistan) are against the initiative.
Thus, within the region, the end purpose of the Eurasian Economic Community is to permit the free movement of goods, capital and people and to harmonise macroeconomic and structural policies. Starting with 2012, member states have agreed to apply codes to the different agreements and treaties until 2015, when they will negotiate the steps to continue integration.
Benefits and challenges
Economic integration brings benefits due to the elimination of tariff barriers (or tariff cuts) which determines the increase of trade and consolidates the customers’ choices and in the case of the Customs Unions the effects of creating the commercial area will lead to the elimination of administrative barriers, internal borders and customs controls.
The improvement of cross-border regional infrastructure is an important role of the union. A significant benefit of economic integration is to create opportunities for expanding exports worldwide. Initially, this led to building the export capacity which has the tariff advantage by eliminating tariff barriers or reducing tariffs which, in turn, leads to competitive advantages in the export with other countries. For Kazakhstan and Russia the development of such objectives related to the export activity is the main challenge.
Last but not least, integration encourages the liberalisation of the services market which tends to be subject to regulation and legislation, compared to the goods market (even within the EU, these remain fragmented to a certain extent). However, in the context of the Eurasian integration, there is a high potential for increasing the efficiency of these markets and this potential can be turned into account by reducing barriers for the access of new companies and investors from other countries.
Apart from the benefits of economic integration, countries are confronted with a series of challenges, one of the most important being to significantly reduce the negative effects on the economic links with the countries that are not members of the union. “Such effects typically occur through trade diversion, whereby a relative change in tariff barriers can divert trade from more efficient external exporters to less efficient ones. For example, should the introduction of a common external tariff by a regional bloc result in a relative increase in the import tariff for country outside the region”, the EBRD study states.
Concerns about trade diversion have been raised in the context of the Eurasian Customs Union. Its common tariff, which was formulated in the crisis environment of 2009, was also used in part as a tool of industrial policy to promote selected import substitution through an increase in tariffs (for example, in the case of the automotive sector). Within the Customs Union, the application of tariffs and the implementation of joint measures on the regulation of trade between Russia, Belarus and Kazakhstan have increased cargo volumes by 9% to 62.8 million tonnes of freight.
“We’ve been working for a year within the Joint Economic Area and in this period, international railway transport has increased by 9% compared to the same period last year”, declared Valery Reshetnikov, Vice President of RZD.
The common tariff’s introduction resulted in significant changes to the import tariff structure in each constituent country, with tariff lines adjusted upwards and downwards. Kazakhstan’s schedule underwent the most extensive changes, affecting more than 50% of tariff lines. A common tariff policy is often the first step in economic integration and early evidence suggests that this has already had some impact on trade flows. Its introduction heralded an increase in tariffs for many imports to Kazakhstan and, to a lesser extent, Belarus, which led in turn to a reduction in imports from a number of trading partners outside of the Customs Union.
As related to trade with third countries, the formation of the Customs Union contributes to facilitating trade in the region. For example, although Kazakhstan is the only country in Central Asia which is part of the Union, statistics show that trade values of Kazakhstan to Central Asia and Afghanistan stood at USD 2.8 Billion in January-August 2012, 32% up compared to the same period of last year. Imports increased by 35% and imports by 25.5%.
In order to increase transport volumes, the member states of the union believe that infrastructure development is the main factor used in ensuring connections. The optimisation and development of cross-border infrastructure becomes vital for internal trade, but the three countries implement projects for the construction of efficient railway connections that will also ensure freight traffic on the axis China-Central Asia-Europe.
Share on:
