The Embryo of the EAEU: The Customs Union "The Hybrid" that benefits Kazakhstan

The Eurasian Economic Union is the regional project with the purpose of economic integration and development. The EAEU emerged in 2015, before it existed in the form of Customs Union since 2010, and the Single Economic Space since 2014. The EAEU for now has 5 members, these are the Russian Federation, Republic of Kazakhstan, Armenia, and Belarus. The present Customs Union is the embodiment of the economic integration within the Eurasian Economic Union. The idea on the Single Economic Market was proposed by the first President of Kazakhstan Nursultan Nazarbayev in 1994. The collapse of the USSR provoked the necessity for economic cooperation and revival of the domestic industries of the former Soviet States. The integration of the Commonwealth Independent Countries did not reveal visible results and effective policy implementation. The Customs Union in its turn is expected to create a stronger economic interconnectivity among the member states of the Union, facilitate trade and boost the economies of the EAEU member states. The Eurasian Economic Union followed the successful example of the Customs Union of the European Union, pursuing to create an analogue of such a regional integration. The EU Customs Union is unique; it has fully integrated the common external customs tariffs. The EAEU follows the framework of the EU, by implementing similar policies, and establishing relative institutions. Comparatively to the European Union, the Customs Union of the EAEU is still an embryo project and has space for further development and regional integration. The Customs Union is one of the most ambiguous projects for the people of the member states who debate over the effectives of the Union, the costs and benefits it presents. The major concern within the Kazakhstani people is that the Customs Union of the EAEU presents the interests of the Russian Federation and hence negatively affects the national economy of other member states. However, this paper will discuss the hybrid nature of the Customs Union which provides economic benefits for the member states of the EAEU, in particular the Republic of Kazakhstan.

Part 1. The Customs Union in theory.

The Customs Union is the project of regional integration within which "there are no custom duties"[1] for the purpose of facilitating mutual trade. "The Common Customs Tariff is applied in regulation of the foreign trade with third countries".[2] Hence the Customs Union creates a unique single market with no barriers for trade where goods, services, capital and labor have freedom of movement. With regard to the Customs Code of Union the Commission has the authority to regulate the external common tariffs for the harmonized list of certain goods. The significant feature of the Customs Union is the existence of harmonized classification of goods, the Single Commodity Nomenclature of Foreign Economic Activity that is "a commodity description and coding system used for the purpose of applying customs tariff regulatory measure"[3]. The Nomenclature as well has to be approved by the Commission. The Single Commodity Nomenclature of the EAEU is the synthesis of the coding systems of the WTO and the CIS. Four out of five member states of the EAEU are accessed to the World Trade Organization. The Customs Union of the EAEU have to comply with the rules and regulations of the WTO and the international treaties signed with the third countries.

The Eurasian Economic Union "may apply joint measures to promote exports of goods originating from the Member States to the markets of third parties". [4]This condition could be seen in parallel with the European Union, and the concept of Europeanization. If the member states of the EAEU will pursue to create the 'made in the EAEU' trade mark and promote the concept of "good of the Eurasian Economic Union", these measures will serve a spillover effect and influence further integration process that might even lead to the concept of "Eurasian law". Hence new regulations within the Customs Union might indeed enhance regional integration. However, the member states of the EAEU might not pursue to pull too much of their sovereignty, because the states of the post-Soviet are more sensitive to the concept of 'independence' and value it to a great extent. This might affect the population of the Union to be skeptical of the integration process of the Union. From here, the radical measures cannot be easily adopted to speed up the process of integration as the people could not be ready to accept new conditions. Thus, the integration might continue to follow slow and gradual tendency.

The Customs Union is the subset of the trade policy of the EAEU. In the European Union the commercial policy is an exclusive EU competence. In the EAEU, the Eurasian Economic Commission is in charge of most of the regulations related to the Customs Union. The Commission has to maintain the Single Commodity Nomenclature and the Common Customs Tariff of the EAEU, "determine the rates of import customs duties, set out the application procedure for tariff exemptions"[5]. However, the Commission has no power to impose the enforcement procedure against the states for non-compliance, that is "failing to fulfill binding obligations". Hence, "only the member states can file actions against other Member States". Hence, the Customs Union could be argued to be in between the exclusive and shared competence.

The Eurasian Economic Commission is composed of the Council of the Commission and the Board of the Commission. The Council consists of a one representative from each member state. The Board of the Commission consists of two commissioners per member state. The Council is intergovernmental in its nature and is in charge of the administrative work. The Board is a supranational body that is responsible for the executive work. The Council of the Commission has to "introduce the annual reports on the monitoring of regulatory impact assessment procedure to the Intergovernmental Council"[6]. The decision-making process in the EAEU for the most part is done by the Council of the Commission. "The Council of the Commission adopts decisions, dispositions and recommendations by consensus"[7]. Hence the stage of decision making differs substantially from the decision process in the EU which involves the ordinary legislative procedure, that puts the Council and the Parliament on the equal footing.

If the Council of the Commission did not reach a consensus, it sends the proposal to the Intergovernmental Council to consider this issue. If the Intergovernmental Council has a conflicting perspective with the Council of the Commission, then the Supreme Eurasian Economic Council’s decision will prevail on the approval of the legislation, as it has the highest jurisdiction in the Union. In the Supreme Council the heads of states have to agree by consensus that means that any state can veto if it disagrees with the legislation. That points out on the existing equal rights for say among the member states of EAEU.

The Board of the Commission in its turn is in charge of "implementing the decisions and dispositions"[8]. It further monitors the implementation of international treaties with the third parties. The implementation of the foreign trade policy requires the transposition to the national law, that is the legislations have to be ratified in accordance with the legislation of the member states of the Union.

Part 2. The Common Customs Tariff of the EAEU.

The Common Customs Tariff of the Eurasian Economic Union (CCT EAEU) is a "set of rates of customs duties applied to the goods imported from third countries into the customs territory of the Union"[9]. The CCT is mainly applied in the EAEU with the purpose of integration of the Union into the global economy, as well to make progressive "changes in the structure of the production and consumption of goods within the Union"[10]. The CCT’s regulatory measures include the "application of the rates of import customs duties, tariff quotas, tariff preferences, and tariff exemptions"[11]. According to the Treaty on the EAEU, these regulations are to be established by the Commission including the classification of goods. The Commodity Nomenclature specifies the customs regulations to a large extent and creates a harmonized list of goods that are categorized by a unique parameter, the specific code number.

The Common Customs Tariff does not apply to all the goods listed in the Commodity nomenclature, and member states have different external tariffs for the temporary period.

According to the Decision #59 of 14/10/2015, the Council of the EEC approved the list of goods that have the lower customs duty rates in accordance with the conditions of the Republic of Kazakhstan accession to the World Trade Organization. The reason of the implementation of such measures is the fact that the Republic of Kazakhstan applied to the membership in the WTO a long time ago and the negations started already in 1996, prior to the establishment of the Customs Union. Hence, Kazakhstan is obliged not to export the imported goods at a lower tariff to the members of the EAEU and use them only with the territory of the state. Kazakhstan in turn benefits from such a special status within the EAEU, as it has lower customs duty rates on a considerable amount of goods. Thus, this condition might facilitate the modernization process of the state and maintain good economic measures of the country.

For instance, the good coded as 0207 13 300 1 in the Commodity Nomenclature has the Common Customs Tariff of 25 %, while Kazakhstan according to the Decision #59 is allowed to import the same good at the rate of 15 % which is considerably lower than the CCT.

The Republic of Armenia as well has different customs duty rates from the CCT. According to the Decision #113 of 10/12/2014, the Council of the EEC approved the list of goods and the customs duty rates for the Republic of Armenia that are different from the CCT of the EAEU due to the state’s transition period. The customs duty rates are temporary measure and by 2022 all the goods have to be imported by the Common Customs Tariff of the EAEU. Hence, due to the relatively young age of the EAEU, the Customs union is not fully integrated and has different external tariffs.

Part 2.1 The Customs Authorities of the Member-States.

According to the Treaty of the EAEU, the state which has lower import customs duty rates than the CCT of the EAEU has to "take measures to prevent the flow of these goods into the territory of the other member states of the Union". Thus, while the Customs Union has different external tariffs, the Commission will have to pull part of its authorities over the customs regulations to the member states. Hence, the customs authorities of the member states have a considerable power. Thus, different external tariffs are the obstacles for the integration of the Customs Union. Furthermore, unlike in the EU, the member states of the EAEU can unilaterally determine the non-tariff regulatory measures with the third countries.

The Customs authorities of the member states are empowered to launch investigation proceedings for "criminal offenses in regard with the legislation of the respective member state".[12] The authorities can also take actions against the violators of the administrative law. They as well have the right to stop the "vehicles that leave the Customs territory without the permission"[13]. One of the competences of the Customs authorities is to exchange the preliminary information about the transport that enters and exits the territory of the Union. The decisions which are made by the customs authorities as well have the status of mutual recognition in other member states, they are legal within the territory of the Customs Union.

Part 2.2 Primary Legislative Act.

On January, 22, 2019, the Collegium of the Eurasian Economic Commission drafted the Order of the Council of the EEC on the exchange of information on goods and vehicles that move across the borders of the EAEU and People's Republic of China. The objective of this regulation is to control for the customs borders and reduce the amount of violations of the rules of the Customs Code of the EAEU and the international treaties. The new Order as well considers the data on the vehicles of the ‘transit’ status. This in turn will decrease the risks of transition of the prohibited and dangerous goods, and develop the security controls within the territory of the EAEU and the People’s Republic of China. The exchange of information will include the data on the check points that determine the entry and the exit areas on the borders, the code of the transported goods in accordance to the Commodity Nomenclature. The Order No #15 hence will strengthen the relationship between the Customs Union of the EAEU and its major trading partner. According to the EEC statistics of the external trade, in 2018 the EAEU had the largest turnover with the People’s Republic of China, accounting for around 80 billion USD dollars. Thus, with the implementation of the Order #15 the regulations regarding the customs control will be simplified which will enhance the trade relations among the both parties.

Part 2.3. The Customs Union: New Opportunities.

The Customs Union opens the new market for domestic goods and services. By accessing the EAEU, member states have an access to the single economic space of around 183 million people. For instance, this indicator is 10 times higher than the population of Kazakhstan itself. The single market with no barriers for trade and elimination of customs controls presents enormous opportunities for domestic enterprises, which can increase the production capacity of the state. For instance, the export of Kazakhstani confectionary companies such as "Bayan-Sulu" and "Rakhat" has grown by almost three times. The batteries enterprises "Kainar AKB" and "Zhersupower" increased their export by 11 time and the EAEU countries consume 79 % of the total production[14]. Thus, the elimination of the trade barriers positively affects the development of the production capacity of domestic enterprises.

The Customs Union as well facilitates the increase in foreign investments. For instance, "the German company "Funke" invested 24 millions of Euro in the production of windows in the city of Nur-Sultan"[15]. Approximately 60 percent of the goods are exported to Russia. Hence, the international companies have the interest in establishing businesses in the member states of the EAEU with the purpose of further export to the single market of the EAEU. Thus, zero internal tariffs present opportunities for both the domestic and foreign enterprises.

To sum up, the Customs Union is project of regional integration of the Eurasian Economic Union. The Customs Union is not fully integrated and it applies different customs duty rates on the import of goods. The member states of the EAEU are still in the transition period of the accession to the EAEU. However, the Commodity Nomenclature and the Common Customs Tariff on the majority of goods is the significant output of the trade policy of the EAEU. The Customs Union is hybrid in its character because it has partial application of the Common Customs Tariff and the competence over the CU is divided between the Eurasian Economic Commission and the Customs Authorities of the Member States. Due to the fact that the Customs Union of the EAEU is relatively young, the overall image of the Customs Union is still ambiguous. However, the CU benefits Kazakhstan, as it empowers the state with the lower external tariffs and facilitates the rise of the production capacity of the domestic enterprises. The Single Market of the EAEU creates opportunities for increase in the mutual trade turnover and in the flow of foreign investments. Thus, even the CU is not fully integrated it has positive implications to the economy of Kazakhstan. Hence, the Customs Union is the successful project of the EAEU that in future will further serve as the functional spillover of the integration process in the EAEU.

References

Astana Times. "The Customs Union Benefits Kazakh Producers and Trade". May 3, 2014. https://astanatimes.com/2014/05/customs-union-benefits-kazakh-producers-trade-official-says/.

Common Customs Tariff. [Eurasian Economic Commission]. http://www.eurasiancommission.org/ru/act/trade/catr/ett/Pages/default.aspx

Courtesy translation of the Treaty on the Eurasian Economic Union. [ Legal Portal of EEC 29.05.2014]. https://docs.eaeunion.org/ru-ru/Pages/DisplayDocument.aspx?s=bef9c798-3978-42f3-9ef2-d0fb3d53b75f&w=632c7868-4ee2-4b21-bc64-1995328e6ef3&l=540294ae-c3c9-4511-9bf8-aaf5d6e0d169&EntityID=3610

Decision 59/2015/EEC of the Eurasian Economic Commission of 14 October 2015 on the list of goods that have lower customs duty rates in accordance with the agreement between the WTO and Republic of Kazakhstan.

Decision 113/2014/EEC of the Eurasian Economic Commission of 10 December 2019 on the list of goods that have lower customs duty rates due to the transition period of the accession of the Republic of Armenia to the EAEU.

Order 15/2019/EEC of the Eurasian Economic Commission of 22 January 2019 on the project of agreement on exchange of information about goods and vehicles of international transport moving across the customs borders of the Eurasian Economic Union and the People’s Republic of China. [Legal Portal of EEC, 22.01.2019]. https://docs.eaeunion.org/docs/en-us/01420806/clco_25012019_15

Unofficial Translation of the Treaty on the Customs Code of the Eurasian Economic Union [Legal Portal of EEC, 11.04.2017]. http://www.eurasiancommission.org/en/act/tam_sotr/dep_tamoj_zak/SiteAssets/Customs%20Code%20of%20the%20EAEU.pdf

[1] The Treaty of the EAEU.

[2] ibid.

[3] ibid.

[4] The Customs Code of the EAEU.

[5] The Treaty of the EAEU.

[6] The Treaty of the EAEU.

[7]ibid.

[8] Treaty of the EAEU.

[9] The Customs Code of the EAEU.

[10] ibid.

[11] ibid.

[12] The Customs Code of the EAEU.

[13] The Customs Code of the EAEU.

[14] Astana Times.

[15] Astana Times.