Belarus Sues Russia in the CIS Economic Court

By Vladimir Socor

In a precedent-setting move, Belarus is suing Russia in the CIS Economic Court. The case at hand concerns Russian export duties on refined oil products and “petrochemical raw materials” to Belarus. The procedure could open the way for recourse to the CIS Economic Court on other issues and by member countries.

The CIS Economic Court is a deeply dormant institution that happens to be located in Belarus’ capital, Minsk. It is an all-but forgotten legacy from the first institutionalization of the CIS in the early 1990’s, when Minsk had briefly been considered as a second CIS capital and possible host of a number of CIS bodies. The case now initiated by Belarus marks the first time in many years when a CIS member country resorts to this economic court in defending its perceived rights and interests against Moscow.

The CIS Economic Court is essentially an arbitration body, mandated to adjudicate disputes that involve governments of member countries as well as economic bodies of the CIS itself. The 11 member countries are entitled to representation on the court, through judges designated by the respective governments. The court is intended to render an arbitration decision within 30 days from the submission of a complaint. The deadline would be April 25 in this dispute between Minsk and Moscow (Belarus Television Channel One, March 25).

This court’s decisions are supposedly binding, not merely advisory. An appeal procedure is not envisaged. In the event of non-execution of a decision, however, the aggrieved party has the right to ask the Council of Heads of State (the highest political authority in the CIS) to call for the decision to be carried out. An enforcement mechanism does not exist, however. The court’s bylaws also allow the parties to make an out-of-court settlement while the case is pending (Interfax, March 30).

According to Minsk, the CIS Economic Court should also exercise jurisdiction in the Eurasian Economic Community (the dormant EurAsEc, a Moscow-led subgroup of six countries including Belarus) and in the putative Russia-Belarus “union state.” These two subgroups were supposed to create their own economic courts, but failed to do so, thus presumably allowing the CIS Economic Court, by default, to arbitrate disputes within EurAsEc or the Russia-Belarus virtual “union state.”

The CIS Economic Court is also apparently designated as the arbitration instance of the Russia-Belarus-Kazakhstan Customs Union. This trilateral customs union is due to take legal effect on July 1, 2010, and looks far more consequential than those other two subgroups.

The Belarusian justice ministry is the formal plaintiff in the case. It seeks the cancellation of the January 1, 2010 decision by the Russian Customs Service, which introduced export duties on “petrochemical raw materials” and a wide range of petroleum products that are being delivered from Russia to Belarus. The Russian move, with immediate effect from that date, has considerably raised the purchase prices of those products in Belarus, hurting the country’s economy (Interfax, March 26).

Minsk is basing its complaint on multiple agreements on “free trade” and “equal conditions for activity of business entities.” Such agreements have been signed by Russia and Belarus within their nominal “union state” (from 1996 onward), EurAsEc (from 2000 onward), and most recently as part of the Russia-Belarus-Kazakhstan Customs Union. In Minsk’s interpretation, those agreements preclude any export duties in reciprocal trade and would even entitle Belarus to domestic Russian prices on energy supplies, with the unique and temporary exception of Russian crude oil.

According to the Belarusian Justice Minister, Viktar Halavanau, Russia has breached the latest bilateral agreement by introducing export duties on refined oil products and “petrochemical raw materials” delivered to Belarus. Under the January 27, 2010 inter-governmental protocol, Belarus had to accept Russian export duties on crude oil supplies. But, the protocol did not authorize any duties on refined products or petrochemicals (Belapan, April 2).

The affected refineries and petrochemical plants in Belarus are also prepared to seek international arbitration, possibly beyond the CIS framework (Kommersant, March 26).

Ironically, this latest controversy between Moscow and Minsk has coincided with the Day of Unity of the Peoples of Belarus and Russia, which is celebrated annually on April 2 (it marks the 1996 founding of the would-be “Russia-Belarus union state”).

In Minsk, for that anniversary, Russian First Deputy Prime Minister, Igor Shuvalov, sounded dismissive of the host country’s grievance. Apparently affecting ignorance of the CIS Economic Court case, Shuvalov suggested an out-of-court, political discussion of the issue. The proposed forum, however, is singularly ill-suited for such a discussion, let alone decision. Shuvalov asked Lukashenka to take up the issue with Russian President Dmitry Medvedev and Prime Minister Vladimir Putin when they meet in Moscow on May 9 for the World War Two victory celebrations (Interfax, April 2).

Oil “Export” Duties: a Peculiarity of the Russian-Led Customs Union

Vladimir Socor

The Russian government is apparently moving to operationalize the nominal “union state” with Belarus through a process of economic absorption. Accession to the Russia-Belarus-Kazakhstan Customs Union is not protecting Belarus against this process.

Russia’s introduction of export duties on refined oil products and “petrochemical raw material” supplies to Belarus (Belarus Sues Russia in the CIS Economic Court, EDM, April 5) is the latest move toward that end. It follows Moscow’s imposition of export duties on crude oil deliveries to Belarus on January 1, 2010. Under threat of an imminent stoppage of Russian oil supplies to Belarus refineries, Moscow compelled Minsk to accept that measure in a January 27, 2010 inter-governmental protocol. Those duties apply to 15 million tons of Russian crude oil delivered annually to Belarus, out of the total annual volume of 21 million tons. Belarus is processing the 15 million tons for export of the refined products, and the remainder of 6 million tons for internal consumption of the products.

Those duties have substantially raised the purchase price of Russian oil in Belarus, correspondingly raising the price of refined products exported by Belarus to European countries. This spiral could quickly render the Belarusian refineries uncompetitive. To offset this price spiral, Minsk has been forced to abolish its own duties on the export of oil products from Belarus to European countries. Minsk’s response applies symmetrically to products refined from the 15 million ton portion of Russian crude oil subjected to the Russian export duty (Interfax, March 30).

These measures threaten the viability of Belarusian refineries, the country’s most lucrative economic sector. Minsk’s renunciation of its own export duty on refined products is an almost desperate move to avoid a sharp increase in the export price of its refineries’ production. The response enables those refineries to stay competitive in the short term, but jeopardizes Minsk’s capacity to invest in the refineries’ technological upkeep and modernization in the medium term.

The Russian government has recently encouraged Russian oil producing companies to acquire ownership stakes in the processing plants in Belarus. Raising the price of crude oil supplies to those plants through the export duty is a hostile-takeover tactic. It threatens to price those refineries’ production out of European export markets.

Those duties on crude oil, refined products, and “petrochemical raw materials” directly contravene the free-trade agreements within the Russia-Belarus-Kazakhstan Customs Union. Theoretically at least, the customs union eliminates such duties on all goods within that territory, no longer allowing the exception for crude oil. Belarus has announced its intention to sue Russia in the CIS Economic Court over the crude oil duties, as soon as the Russia-Belarus-Kazakhstan Customs Union takes legal effect on July 1.

Moscow, however, is suddenly claiming that July 1 will not mark a legal watershed after all. According to First Deputy Prime Minister, Igor Shuvalov, the Russia-Belarus-Kazakhstan Customs Union will not become fully operational by that date, but would still require “a whole package of inter-state agreements on the creation of a single economic space….which will take quite a lot of time.” Shuvalov optimistically expects that goal to be accomplished by January 2012 (RIA Novosti, April 1). Pending this, he is warning Minsk and other would-be Customs Union entrants that Russia will continue applying export duties, at least on crude oil and oil products. Shuvalov has delivered this message three times in the space of five days: from Moscow, in Kyiv to Prime Minister Nikolai Azarov, and in Minsk to Lukashenka (Interfax, March 28, April 1, 2).

Lukashenka hopes to enlist support from Kazakhstan in eliminating internal “export” duties within the supposed Customs Union’s territory. He raised that issue with Kazakhstan’s Minister of Foreign Affairs, Kanat Saudabayev, who was visiting Belarus in his concurrent capacity as OSCE chairman-in-office. Lukashenka is warning that internal export duties would invalidate the basic concept of this or any customs union, consigning it to the fate of the CIS or the Eurasian Economic Community (EurAsEc). Minsk would like to hear Astana’s “sincere position” on this issue (Belapan, March 30).

Briefing the media in Minsk, Russian Ambassador Aleksandr Surikov explicitly confirmed Moscow’s goal to turn the state-owned oil and gas enterprises of Belarus into joint Russia-Belarus enterprises (Interfax, Belapan, March 31).

On March 30, Russia’s Gazprom completed the acquisition of 50 percent of the Belarusian gas pipeline operator, BelTransGas; and installed Gazprom’s Vice-Chairman, Valery Golubev, as board chairman of BelTransGas (replacing a deputy prime minister of Belarus). With this move accomplished, Moscow now proposes to turn Belarus’ Hradna plant of nitrate-based fertilizer-(an intensive consumer of natural gas) into a joint Russian-Belarusian enterprise (Interfax, March 31; Belapan, April 1).

Chairing a government session on March 30, Belarusian President, Alyaksandr Lukashenka, directly criticized his Russian counterpart Vladimir Putin over the crude oil and oil products duties, as well as for last year’s restrictions on dairy products and sugar exports from Belarus to the Russian market. Lukashenka has urged his government to respond by promoting “diversification of Belarus’ economic, political, and diplomatic partnerships” (Interfax, March 30).
The Jamestown Foundation