A Semi-Soviet Union is Born

 By Kenjali Tinibai
The inauguration of the Russia-Kazakhstan-Belarus customs union at the beginning of this year gave a very visible push to the Kremlin’s long-term goal of economic reintegration of the former Soviet republics.

There has never been any doubt that the Russian government would play the leading role in decision making, whether in a customs union or the in the next step foreseen, a single market that could soon become a reality. Many analysts interpret the Kremlin’s intent as to re-create a kind of modernized Soviet Union, at least at the economic level.

The Kremlin’s initial moves in support of Prime Minister Vladimir Putin’s goal of a Russian-dominated zone embracing much of the former Soviet Union have been in the economic sphere. A half-dozen states have been drawn into the Russian economic embrace, and now Belarus and Kazakhstan have accepted Moscow’s invitation to begin applying common customs tariffs on the majority of imported goods.

It’s early days yet for the customs union. The three countries began applying common tariffs on 1 January, and a few types of products are temporarily exempt. But the impact of the new measures is provoking indignation among consumers in Kazakhstan, who are upset over higher prices for a wide range of goods.

“Why does a new Toyota Camry made in Russia [now] cost 40,000 American dollars when all over the world the price is just 22,000?” one blogger complained on a Kazakh Internet site.

The prices of imported clothing, leather goods, shoes, and perfumes have risen on the back of higher duties.
Many medicines imported from outside the former Soviet countries are also more expensive now. Customs duties rose by 5 percent on imported insulin, hemoglobin, and some kinds of antibiotics, as well as vitamins. The duty on leather goods went from 5 percent of the cost of the goods to 20 percent, a rise of about $7 per kilogram.

In Kazakhstan you can hear the view that the system of common tariffs is working to strengthen Russia’s positions. Some Russian officials are openly saying that the new tariff setup is based largely on the Russian system. And Moscow’s ambitions go well beyond the customs union now in place. The Russian, Kazakh, and Belarusian leaders have approved documents to establish a “common economic space” on 1 January 2012 – a single market for goods, investment, and labor.

When the three countries’ presidents signed the documents establishing the customs union in November they promised that it would boost trade, make their countries more competitive, and promote investment opportunities. Kazakhstan’s president, Nursultan Nazarbaev, put the combined trade turnover of the three members at $900 billion. Although that is probably an embellishment, as leaders of post-Soviet states often tend to overstate figures relating to intrastate economic schemes, the customs union does have enormous potential, and, as Nazarbaev also declared, it could become a major exporter of oil and grain in the future. But these benefits may seem rather abstract to many consumers in Kazakhstan who so far are seeing mostly higher prices. Where products from developed countries used to be comparatively inexpensive, many Kazakhs have noted considerable rises in the retail cost of goods imported from outside the union. Some of the loudest complaints concern the price of cars.

On 1 January the customs duty on imported cars rose from 10 percent of the price – the old Kazakh rate – to match the Russian rate of 30 to 35 percent. Behind these measures, some see Russia attempting to give an unfair advantage to its own auto industry products – cars that are uncompetitive on world markets.

The new tariff system could unleash a flood of imports of all sorts, they warn, undermining domestic producers’ market positions and perhaps causing an upturn in inflation. In 2007, Kazakhstan exported about $46 billion worth of goods and services, dominated by hydrocarbons, and imported about $30 billion worth, according to the World Bank.


At first glance it may seem that domestic producers in Kazakhstan now have a price advantage over imports, because of the higher import duties. The truth is that old marketplace rivals have given way to new ones. The Russian government is the dominant influence over common economic policies in the customs union’s coordinating structures. Kazakh companies may now face a raft of new competition from Russian firms under less than equal conditions.

One Kazakh economic analyst thinks local businesses must get ready for cutthroat competition from Russian imports.

According to Dosym Satpaev, director of the Risk Assessment Group think tank in Amaty, Russian companies are likely to gain the advantage on the Kazakh market over the next several years, thanks to the more competitive products the far larger and comparatively more developed Russian economy can turn out. Meanwhile, he says, the Kazakh economy will continue to be hampered by organizational deficits, quality control, and other problems. Kazakhstan is not yet ready for economic integration of the type Russia is spearheading, he warns.

Economic data alone underline Russia’s leading role in the new customs union and proposed single market. Although the Kazakh economy is one of the largest of the ex-Soviet republics, with a 2008 GDP estimated by the World Bank to be $132 billion, it’s less than a tenth the size of Russia’s.

Coming close on the heels of the launch of the customs union, the victory of a close friend in the Ukrainian presidential election will give new impetus and vigor to the Kremlin’s aim of further asserting its dominance of the post-Soviet economic space.

So far Kyrgyzstan and Tajikistan have indicated strong interest in joining the customs union, and as for the second-largest economy in the post-Soviet sphere, Ukraine, president-elect Viktor Yanukovych told the British Daily Telegraph that he favored joining the growing Russian-led economic zone. Ukrainian entry into the customs union would shift the regional balance of power strongly toward inner Eurasia, and, particularly if no positive steps toward creating a more liberal political system occur in Russia, the European Union could then expect to face stronger Russian pressure in the center and west of the continent.

Given that the Kremlin is seeking to regain its influence in Eurasia, if Ukraine joins the Russian-led economic zone, the Baltic states and the Central and Eastern European former Warsaw Pact members will take the brunt of that pressure.