The Eurasian Customs Union among Russia, Belarus and Kazakhstan: Can It Succeed Where Its Predecessor Failed?

In 2010, Russia, Belarus and Kazakhstan formed the Eurasian Customs Union and imposed the Russian tariff as the common external tariff of the Customs Union. This resulted in almost doubling the external average tariff of the more liberal Kazakhstan. Russia has benefited from additional exports to Kazakhstan under the protection of the higher tariffs in Kazakhstan. But estimates reveal that the tariff changes resulted in substantial transfers from Kazakhstan to Russia as importers in Kazakhstan now purchase lower quality or higher priced Russian imports that are protected under the tariff umbrella of the common external tariff. Transfers from the Central Asian countries to Russia were the reason the Eurasian Economic Community (known as EurAsEC) failed, so this bodes badly for the ultimate success of the Eurasian Customs Union. What is different, however, is that the Eurasian Customs Union and its associated Common Economic Space aim to reduce non-tariff barriers and improve trade facilitation, and also to allow the free movement of capital and labor, liberalize services, and harmonize some regulations. Estimates by my colleagues and I show that if substantial progress could be made in trade facilitation and reducing non-tariff barriers, this could make the Customs Union positive for Kazakhstan and other potential Central Asian members. Unfortunately, so far the Customs Union has made these matters worse. But Russia's accession to the World Trade Organization will eventually substantially reduce the transfers from Kazakhstan to Russia. Progress with non-tariff barriers and trade facilitation, however, will take a strong political commitment from Russia which we have not yet seen. But if that Russian political leadership is forthcoming, the Eurasian Customs Union could succeed where its predecessor failed.