On Jan. 1, the Eurasian Economic Union (EAEU) became a reality, uniting Kazakhstan, Russia, Belarus and Armenia (which joined on Jan. 2) in a single economic bloc. Minister of Economy and Financial Policy of the Eurasian Economic Commission Timur Suleimenov discussed how the EAEU would affect the development of its member states and provide new opportunities for business and citizens in an interview for the Kazakhstanskaya Pravda newspaper. It is printed here in an abridged form.
Kazakhstan, Russia and Belarus have great expectations for the EAEU. Are they justified? How soon should we expect to see strengthened economic cooperation in this new stage of integration of the Customs Union?
The establishment of the Eurasian Economic Union and deepening of integration among our countries will become an important factor for boosting trade and economic cooperation between the states, achieving sustainable economic growth and preventing negative trends resulting from the exacerbation of the crisis in the global economy.
Today, it is more important than ever to use the potential of our association. First of all, there is the common market of over 180 million people (taking into account Armenia and Kyrgyzstan). The total gross domestic product of the economies of the member-states reaches more than $2 trillion. The treaty on the EAEU is aimed at improving the welfare and standard of living of our citizens. It provides for the free movement of goods, services, capital and labour. These four freedoms are the essence of the Eurasian integration.
The agreement registers the need for concerted and coordinated policies in key sectors of the economy: transport, energy, macroeconomics, industry and agriculture. Opportunities are created to implement major infrastructure projects, which will have a powerful multiplier effect for economic development of our countries, create jobs, stimulate domestic demand in the markets of the member-states and increase real incomes of the population of the EAEU.
At present, the EAEU is already functioning providing free movement of goods. The cancellation of customs, phytosanitary, veterinary and other controls – except for at external borders – at internal borders contributes to the acceleration of goods movement and allows businesses to save time and reduce costs. However, today there are still certain sectors which do not have a single market. The number of such sectors is small, but it’s a significant volume of our trade. …
The most important direction of the Eurasian integration is the creation of a single market for services. … In December 2014, a decision of the Supreme Eurasian Economic Council approved the list of service sectors that would operate under the principles of the single market. They are construction, engineering services (from Jan. 1 of this year for Belarus and Russia, by 2025 for Kazakhstan), services related to agriculture, wholesale and retail trade, hotels and catering (2016 for Kazakhstan) and others. Since Jan. 1, providers were entitled to whole range of freedoms inherent in the single market for services.
The Eurasian Economic Commission, in cooperation with the governments of the member-states, developed a list of service sectors which would go through a transition period. This list includes advertising, auditing, tourism, property valuation, accounting, conducting scientific research, et cetera. The main principle of the EAEU single market for services is to guarantee the most favoured nation treatment without any limitations and exceptions to providers and recipients of services. At the same time, the treaty provides an opportunity for member-states to apply restrictions and withdraw from national treatment and most favoured nation treatment. However, our countries reached an agreement on the gradual reduction of these restrictions and exemptions in the future and the development of cooperation in the direction of market liberalisation.
The single market for services will be a powerful impetus for the economic and industrial growth of our countries, will improve their competitiveness, revitalise business, create jobs and reduce unemployment. Thus, Eurasian integration is becoming an important factor for the sustainable development of our countries. Activation of integration processes will contribute to the structural transformation of the economies of the union, their modernisation and diversification.
In recent years, we have seen Kazakhstan, Russia and Belarus implementing measures to improve the investment climate and increase support for small and medium-sized enterprises (SMEs), and the Eurasian Economic Council’s priority activities are facilitating and creating a favourable business environment. What specifically can the EAEU offer to investors and entrepreneurs?
For example, with the creation of the EAEU a single market for services started functioning for many service sectors. It aims to eliminate barriers for business entities. The EAUA treaty defined the basic principles of liberalising trade of services and the key one is optimising internal control. This principle assumes a gradual simplification of licensing requirements and procedures for providers and recipients of services, greatly expanding opportunities for business activities of our countries. The optimisation of internal control should take into account international best practices. …
Another basic principle of the single market for services is transparency. Each member-state makes its legislation open and accessible, an important factor in enhancing business activity and interaction between economic agents. Implementing of the rules on protecting investments is essential to developing entrepreneurship in our countries. In particular, in accordance with the EAEU Treaty, every member-state ensures fair and equitable treatment of investments.
It should be noted that the treaty contains norms with regard to investors and investments to obtain national treatment and most favoured nation treatment. The right to choose between the application of national treatment and most favoured nation treatment depends on which mode is the most favourable. In addition, the treaty provides rules for compensation and guarantees to investors.
Within the EAEU, we create a single market of public procurement, with businessmen from all three countries receiving equal access to it. This will expand opportunities to access the public procurement markets of the member-states and increase competition, which will result in improved quality of services and increased savings of public funds.Currently, the volume of the combined market of public procurement is estimated at $264 billion.
Does the EAEU have any mechanisms for developing cooperation with other states and corporations and improving conditions for attracting foreign investment, or will it focus on redirecting investments to the EAEU countries and using their own financial resources for developing their economies?
We are not a closed union. We plan to attract investment and are willing to cooperate with all interested parties. The formation of a common market for goods, services and capital creates even more opportunities for the development of investment bonds with third countries. …
The EU is the largest trade partner of our country. For the four states, trade with the EU accounts for over half of total trade with third countries. Today, we are also considering creating a free trade area between the EU and the EAEU. This idea is still under discussion at the level of debate. But its implementation will lead to the “integration of integration.”
On the other hand, today, great potential emerges for increased cooperation with the Shanghai Cooperation Organisation (SCO). Our Chinese colleagues are implementing an ambitious project to create the New Silk Road Economic Belt. China has actively implemented measures to develop transport infrastructure and construct high-speed railways. In particular, it is gradually realising a strategic plan to develop the transport and economic corridor the New Silk Road, starting from Beijing and other big cities in eastern China and ending, perhaps, in London, Rotterdam and Barcelona.
The EAEU countries are also currently implementing a promising project: the Western Europe –Western China highway. Its main advantage is reducing the time of delivery of goods from China to Europe. …
In addition, it is important to develop cooperation with SCO countries in the energy sector. One of the priorities of the SCO is establishing an Energy Club. Therefore, our country could create the foundation for a common energy space, contributing to strengthening the economic security of the entire Eurasian region. …
The Eurasian Economic Commission (EEC) and national regulators developed a road map for harmonising national financial legislation. How will this work be reflected in the financial markets and movement of capital? What are the prospects for the introduction of a single currency for the EAEU?
The most important priority of any integration is creating a common financial market. To achieve this goal, our countries will gradually deepen economic integration and harmonise legislation in the financial market. Initially, we must agree on common requirements for financial market participants. These requirements are quite similar in our countries, but there are some important differences. … [D]uring the second phase, we will be able to create a regulatory framework and develop uniform technology and general procedures for the supervision by regulatory bodies of participants in financial markets. …
Uniform requirements and common approaches to supervision are necessary steps to achieving a new level of integration: mutual recognition of licenses of financial market participants and, if possible, procedures for obtaining a license in one country to carry out financial activities throughout the EAEU. By 2025, we will explore establishing a supranational regulatory body for financial markets. Undoubtedly, settling this issue will mark the beginning of a new stage in the construction of the common market and its advance to a supranational level. …
With regard to the single currency, the following should be noted: the current level of integration demonstrates that there are no objective economic prerequisites for the introduction of a single currency in the EAEU yet. It is too early to speak about creating a single currency, because there is an insufficient flow of goods, service, capital and investment. Moreover, operating a single monetary policy in practice will require a unified budget and tax policy, which is not incorporated in the EAEU Treaty. This issue is currently being discussed by the parties.
However, the issue of a coordinated monetary policy is relevant. In the absence of tariff and non-tariff protection, uncoordinated actions on the currency exchange lead to a distortion of the competitive situation in the markets and harm the strategic objectives of the union.
What has changed for the citizens of EAEU member-states with the launch of the union? What are the pros, especially social pros, of economic integration for the citizens of our countries? How will the labour market be governed? Will educational certificates be recognised? Can a citizen of Kazakhstan get medical help, for example, in Russia, and send children to school?
Since the launch of the EAEU, citizens of the union will have the right to work in any member-state of the union without the need to obtain a working permit. The EAEU Treaty establishes directly that the member-states do not apply restrictions set by their legislation in order to protect the national labour market. Thus, from Jan.1, 2015, citizens of Armenia, Belarus, Kazakhstan and Russia have equal rights to work in the territory of all these states. … You can go to another country and get started right away. In this case, the mutual recognition of diplomas will be performed automatically. It will also positively affect our universities.
The third aspect concerns taxes on the income of individual citizens of EAEU states, which will now be paid at the internal resident rate from the first days of employment, as opposed to after 183 days, as before. In my opinion, this is essential for workers and employers.
As another important innovation within the EAEU Treaty, we created a national regime for the citizens of the four countries in terms of social security. For example, children may be enrolled in kindergarten or school on the same conditions as nationals of the country where you come from. The same applies to health care. In each country within the EAEU, all medical services guaranteed by the state will be equally available to all citizens of the union.
Concerning pensions, the EAEU Treaty set an obligation to settle the issue with the export of pensions and offset of seniority gained in other member-states. Now the Eurasian Economic Commission, together with the parties, is working on an agreement on pensions, which will come into force after 2015.
Finally, I would like to talk about the prospects for expanding the EAEU. Many former Soviet republics have expressed a desire to join. Turkey, Iran, Egypt are showing great interest in the new bloc, and other states are considering free trade zones. What is the reason behind such a strong interest in the union?
Currently, we are witnessing the enlargement of the EAEU. Armenia became a full member of our association on Jan. 2, 2015. Kyrgyzstan also plans to become fully operational within the union in May.
The interest results from the fact that it is much easier and more commercially viable to trade and invest in the framework of a common economic space with common rules of business regulation in key areas than to deal with five different regulatory systems, customs control on the border and various non-tariff barriers.