Abstract
A customs union can be referred to as a trading conformity that permits duty-free distribution of goods and services between member partners and the application of a uniform external duty on goods bought from non-member states outside the trading block.
Generally, custom union eliminates any domestic obstacle to trade and calls for a harmonization of external trade policies. The custom agreement stipulates rules and regulation that are to be adhered to when dealing with products, either being exported or imported from any of the union member states.
The trilateral no-custom agreement between Russia, Kazakhstan and Belarus, came into effect, after the presidents of the three members country, approved to sign the custom code at a meeting between the three head of countries, which was held on July 2010 in Astana Kazakhstan (Tochistkaya 1). Though the trilateral agreement is expected to simplify trading relationship between the three Economies, it is unlikely that it will eliminate all levies in addition to duties.
Introduction
The Economic and political relationships between the three nations dates back several decades ago , putting into consideration that the three countries were members of the formal Soviet Union. From the time of split of the Soviet Union, there has existed a tarnished relationship among the former States of the Union. In particular, Russia has been accused of trying to establish political control over the rest of the countries in the region.
Nevertheless, there has been a good political relationship between Russia, Kazakhstan, and Belarus. Economically, a cordial interaction between the three nations has existed, with a good example being reflected following the first attempt from the three nations, in trying to integrate the region economically as early as in 1995 (Wisniewska 3).
In this particular attempt, though Russia was credited to have inspired the whole process, the partner member’s state had came up with uniform rates for goods imported, in addition to a joint custom code, which was to regulate the procedures used for commodities bought and sold within the custom territory. However, the difference in opinion and principles between the trading partners, could only allow the agreement to be implemented selectively (Wisniewska 3).
Literature review
The step taken by Russia Kazakhstan and Belarus in forming a custom union is very encouraging and worthy every effort made, due to the numerous advantages that are associated with such unifications. Forming a common market is a debatable issue and mostly when the question of whether it really enhances economic growth emerges.
Work by earlier researchers on the topic; shed a little light on the issue. Wisniewska (15) notes that that though there are plenty of benefits that accrue from such unions; giving examples in existence of stronger economic ties, in addition to faster economic growth and development between the trading nations, the author as well points out that there are moreover several negative implications that goes hand to hand with the formation of common markets.
Wisniewska (16) reveals some of the ineffectiveness that resulted from measures undertaken by the association of “Central America common market” in effort to maintain the custom union. In his argument, the author comments that measure to come up with common custom practices do not necessarily move in the course of free and unrestricted trade organizations, that many parties aim to attain.
The American common market, according to the Wisniewska (17), came up with inefficient manufacturing units, which made available to each other costly products for sale, which could not be sold to any other party outside the trading block. Therefore, the highly ineffective industries and the skyrocketing prices attached to products in addition to services sold to the member’s state, culminated to the union eventual downfall.
Another negative consequence attributed to non-tariff barrier is the slowing down of trade. This factor is associated with the fact that non-tariff trade is usually involved with bureaucratic procedures involved in clearance of goods from different trading partners (Wisniewska 17).
The author further notices that these bureaucratic procedures are applied to curtail overflowing of foreign goods into the domestic market. Influx of goods from foreign countries has various negative effects on the domestic industries. Some of these effects are attributed to the fact that most of the domestic industries are usually at their infant stage, and hence mounting enough competition with already established foreign industries is a hard nut to crack.
The other limitation of non-tariff custom union is usually reflected in the fact that it is rare to find trading partner with equal economic strength and financial welfare (Alaxandrov 186). The author in addition explains that this situation usually create imbalanced trading atmosphere with some partners benefiting more than others do. Consequently, the political willingness of joining custom union is rare and especially among those countries that are economically marginalized.
Alaxandrov (187) additionally observes that in undeveloped regions, it is very hard to come up with single currency to enhance smooth operation of trade within the region. Similarly, the author notes that maintaining of sovereignty is the other big issues concerned with custom integration. In most cases, the author as well remarks that such integrations usually make some countries to lose their ability to govern themselves or make independent decision without seeking the approval of member’s states.
According to Alaxandrov (190), for any integration to overcome most of the hurdles associated with development, there are a number of steps that should be well thought-out. The region of preferential trade is the first stage toward the success of any economic integration. The author specifically notes that this is usually witnessed when countries provide each other with reciprocated benefits that enhance positive trade.
The second stage according to Alaxandrov (188) is reflected in custom union, which entails the lifting of cross-boarder trading block and coming up with a single foreign tax rate that is levied to goods from non-members countries. It should be noted according to the author that at this particular stage all the major forces of trading restriction should be implemented by member’s countries.
The open movement of commodities, capital and the work force, forms the third stage of establishing a successful custom integration. Lastly, Alaxandrov (189) notes that political unification which is out of the economic area concerned outlines the most vital and last stage of a successful economic integration.
Despite the fact that a lot of paperwork is involved in the process of economic integration, Black (3) notes that eagerness and necessity of monetary and economic harmonization do not only progress at a snail pace, but also remarks that it step backward at time.
By this, the author claims that economic objectivity as well as political willingness can avoid such situations from taking place. Economic reasons such as the varying levels of resources endowment between members country has been described by the author as the foremost challenge of integration building.
Black (3) notes that economic integration between countries with equal degree of economic prosperity and financial comfort stands a better chance of being successful, compared to economic integration made by countries, which are differently endowed. In particular, the author critically analyzes the products traded by Russia, Kazakhstan and Belarus.
Black (4) points out that Belarus import oil, gas as well as metal from Russia. On the other hand Belarus sells Lorries and cars spare parts, in addition to daily products to Russia. On it part, Black observes that Russia heavily benefits from ores, chemical and metal products from Kazakhstan.
Apart from the trading products between the three countries, Iwona (4) in addition observes that similar to other custom unions, there are a number of other gains, which the three countries can derive from this integration apart from abolition of tariffs. He point out some of the gains as the removal of other hindrances to competition, and those that impede the trade flow. However, black (4) remarks that out of this economic integration; there are few concerns likely to emerge.
The author notes that for any small developing economy to attain faster economic growth and development, access to different and up to date technology is of paramount significance. However, for Kazakhstan and Belarus, this fete may not be achieved with ease; as such, opportunities will be missed owing to the fact that the two countries will totally be directing their efforts to strengthen the custom union. In the process, chances of interrelating with other countries that enjoy advanced technology will be hampered.
Belarus and Kazakhstan have both made notable attempts to declare their liberty and autonomy, and impose their own state identity. However, since they split from the Soviet Union, concerns have been raised within the two countries and worldwide in general concerning the priority between forming the custom union and their sovereignty.
Russia as well has received a number of criticisms, with many people expressing their feelings that the country need to diversify it economy to stop over relying in crude oil, which according to Rawi (599), forms the biggest part of Russia main economic output.
Rawi remarks that Russia also need to embark on means of attaining modern and state-of-art technology, in order to attain a higher rate of economic growth. Similarly, Rawi observes that there are equal concerns on the capability of Kazakhstan and Belarus to meet the large market demand of Russian’s products.
Economical theories
The major economical theories tackled by the trilateral relationship between Russia Kazakhstan and Belarus include economic integration. The actual custom treaty between Russia Kazakhstan and Belarus is intended to open more marketing opportunities between the partner states.
This will be facilitated by free entry of both good and services within the custom union region. By free entry of products from the trading nations, citizens of the three countries will benefit from availability of multiple products, some of which may not be available in their home countries.
Another economic theory equally represented in this particular custom treaty between Russia Kazakhstan and Belarus, is the production theory (Rawi 660). According to the author, production theory refers to attempt made by a firm to elucidate the amount of outputs to produce, and how much quantity of factors of production to make use of.
The custom union between Russia Kazakhstan and Belarus will provide opportunities for member countries to increase their industrial production due to availability of more market chances.
Rawi (661) further elucidates that this will result from the fact that that, there will be free movement of factors of production from one member nation to the other. Similarly, the author observations is that the movement of finished goods will equally enhance not only industrial but also agricultural production, pointing out that less storage space will be required to keep the inventory awaiting sale as ready market for most industrial products will have been established.
Among the benefits, which will be derived from this theory, include the presence of diverse products, because of free movement of finished industrial products from the member’s state (Sakwa 435). The author further notice that citizens of the involved countries will also benefit from industrial products of higher quality compared to those produced by their domestic industries.
These he further remarks will be because of increased competition by the local and foreign companies, with each industry attempting to control more market share. Because of this increased competition, Sakwa (435), in addition, notes that more products will sell at consumer friendly price, as each company will be trying every possible strategy to command the largest share of market, one of such policy being cost reduction.
The comparative theory as used in economics is usually outlined as if merely two nations and two commodities were implicated. In actual sense however, this example is usually presented for more simplicity of clarification. The expenditure of manufacturing as well is quantified in terms of work done, time and attempt made by the labor (Maneschi 200). According to the custom union between Russia Kazakhstan and Belarus, this economic theory has extensively been applied.
A clear illustration is depicted by the fact that among the three countries in this pact; Russia is the biggest producer of crude oil and gas. On the other hand, Kazakhstan boost of supplying both Russia and Belarus with trucks and spare parts. Belarus on it side is a power house with agricultural production and in particular its milk production among the three countries is unrivalled (Markusen 3).
The above explanation means that if each of the country specializes in producing what each produces at the lowest cost, in the long run, each member’s state will benefit from increased production. Consequently, it will be much easier for each country to benefit from economies of large-scale production (Markusen 4). The author further explains that by economies of scale, each country will produce in bulk, and consequently, the cost of producing a single unit of product will eventually decline.
International trade is another economic theory, which is highlighted by Russia, Kazakhstan and Belarus custom union (Zhang 1). According to the Zhang (1), international trade has facilitated movement of good and factors of production from one nation to another or from one part of the world to the other.
Zhang (2) additionally notes that international trade can be defined as any business transaction that involves more than one country. In case of the custom union between Russia, Kazakhstan and Belarus, the theory of international trade is reflected by the fact the three countries make available for sale good and factors of production, of what each country specialize in producing.
Consequently, such transactions take place outside the boundaries of each member partner to the union. Through this trade, Zhang (2) observes that each country is able to benefit from those goods and services that it may not be endowed to produce naturally, or may be experience hardship in it production due to high cost of production involved in it production.
Data and Discussion
Table 1.States GDP in 2009 according purchasing power (Tolkachev 1)
From the table above, the GDP’s of different nations of the world in the year 2009 have been tabulated according to data collected by Tolkachev (1). According to the table, the place a country occupies has as well been illustrated with its GDP being expressed in American dollars. As stated above, for an economic integration to succeed, it is preferred that the member’s states should at least not deviate much from each other, as matter pertaining economic and financial strength is concerned.
However, it is clear from the tabulated results that while Russia occupy position number six on the world GDP ranking with a gross GDP of US$ 2 687 298, Kazakhstan and Belarus stands at position 55 and 59 with a GDP of US dollars 183, 132 and 121, 454 respectively (Tochistkaya 1).
From the above observation, one can simply concludes that the economic integration formed by Russia Kazakhstan and Belarus will not be having mutual benefit to all members, because these country greatly differ in economic strength. This means that Russia is likely going to benefit more from the integration compared to the rest of the member’s state.
Sectors affected by the custom union in the three countries
The formation of the custom union between Russia, Kazakhstan and Belarus, will definitely have effects both positive and negative in the three members state. Among the economic sectors, which will be affected by this integration in Russia, include industrial sector (Tochistkaya 1).
Russia industries will highly be affected by this custom union, noting that most of it industries are financially strong and better established compared to industries both in both Kazakhstan and Belarus (Rawi 114). Other sectors include agriculture, where Russian wheat is anticipated to draw a lot of demand from both Kazakhstan and Belarus market. On the other hand, Belarus is expected to greatly benefit from ready market for its milk (Tochistkaya 1).
This will enable the agricultural sector to flourish, with milk production in the country being given a much-needed boost. Kazakhstan on it side will benefit from free market for it trucks and cars spares parts. This will promote the current industrial sector, which by so far remains the major contributor to the country’s GDP.
In each of the three nations, the service industries will as well be highly enhanced due to free movement of factors of production. Similarly, the movement of competent labor from one country to the other will no longer be hindered and therefore, the employment level will in the three member’s states will be raised, as many job opportunities will be created in the service industries.
Conclusion
In conclusion, the formation of a custom union between Russia, Kazakhstan and Belarus was a welcome step in the three nations. The integration has so far been promising with quantifiable amount of success already being witnessed.
Out of this economic integration, the three countries can now benefit from free movement of goods and other factors of production from one nation to another free of charge. Similarly, apart from abundant job opportunities, within the member’s states for the combined union population, the three nations can now enjoy variety of products, which they could not initially access.
Though there have been some challenges facing the integration such as concern on the sovereignty of the member states, one cannot fail to observe that the custom union has more positive impacts than the negative effects attributed to it. To overcome such failures and enhance a more successful custom union, all the partner members need to come up with measures that are more elaborate in order to separate individual country’s interests with the interest of the union
Works Cited
Alaxandrov, Mikhail. Uneasy Alliance: Relations between Russia and Kazakhstan in the Post-Soviet Era. Oxford: Greenwood Publishing Group, 1999 print.
Black, Joseph. Central Eurasian States, Michigan: Academic International Press, 2000.
Maneschi, Andrea. Comparative Advantage in International Trade: A Historical Perspective. Massachusetts, Edward Elgar Publishing, 1998 print.
Markusen, James. Multinational Firms and the Theory of International Trade. Massachusetts: Massachusetts Institute of Technology Publishers, 2004 print.
Rawi, Abdebal. National Purpose in the World Economy: Post-Soviet States. New York: Cornell University Press.
Sakwa, Richard. Russian Politics and Society. New York: Routledge Publishers, 2008.
Tochistkaya, Irina. The Customs Union between Belarus, Kazakhstan and Russia: And Overview of Economic Implications For Belarus. IPM Research Center. 2010. Web.
Tolkachev, Vitality. Inevitable integration, the future of Eurasian Economic Community. East+West Analytics Review Agency. 2010. Web.
Wisniewska, Iwona. Russian Energy Power and Foreign Relations: Implications for Conflict and Cooperation, Moscow: Rawi & Francis publishers, 2009.
Zhang, Wei-bin. International Trade Theory: Capital, Knowledge and Economic Structures. New York: Springer, 2008.