Mr Khristenko also said Ukraine and Armenia are showing interest in cooperation with the EEC.
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President of Russia Vladimir Putin: Mr Khristenko, let me ask the traditional question: what is the state of progress of our most successful integration projects of late – the Customs Union and the Common Economic Space? How are the relations between these organisations and potential outside partners beyond our common borders developing?
A number of countries in the post-Soviet area have been showing interest in developing relations with the Customs Union and the Common Economic Space. Countries in other parts of the world are showing interest too. I have had quite a few discussions on this matter.
I know that you are working on all of this and are in constant active contact with our partners, so, let’s start with this and then move on to other subjects.
chairman of the Eurasian Economic Commission Board Viktor Khristenko: Mr President, to put developments in perspective, we have entered a difficult year. The continued global crisis inevitably affects the Customs Union economies too. Of course we are already seeing signals in the form of slowing growth rates and in some cases drops in industrial growth and growth in other economic sectors. Even foreign trade, which had been consistently on the increase it seemed, has dropped too over the first months of 2013.
Trade between the three member countries was growing at a rate more than double of trade with the rest of the world last year, but this rate has slowed down now for trade both between the member countries and with outside countries. Taking a closer look at the situation, we saw that fuel and energy sector goods, which are the most vulnerable in terms of market fluctuations, are considerably distorting the picture.
The member countries’ reciprocal trade structure is much healthier and more rational than our foreign trade structure. Fuel and energy sector goods account for three quarters of overall goods in the foreign trade structure, but for around a third of goods in the member countries’ reciprocal trade. If we leave out energy resources (oil and oil products) and look at the other sectors of biggest interest such as machinery equipment and so on, we see that our reciprocal trade structure actually has a positive lean of around 6 percent since the start of 2013. The situation is different on the export markets, where our countries have had a drop in these sectors of more than 12 percent.
I think this demonstrates that our integration is clearly producing an effect and that removing the borders and letting goods move freely is already creating big opportunities for our traditionally strong economic sectors to develop the domestic market.
Vladimir Putin: Essentially, there has been an increase in domestic demand.
Viktor Khristenko: Yes, domestic demand has increased and, more importantly, our own industry is able to satisfy this demand. This is a positive result of integration.
We ended up having to liberalise access to the market last year. We lowered our duties by two percentage points after Russia joined the WTO. But even so, we are still feeling the benefits integration has brought. In part, we are probably also learning bit by bit to better protect our market.
The Commission has had full responsibility since July 1, 2012, for conducting investigations and taking protective measures on the market. Over this time we have taken ten measures to protect all three countries’ markets. These measures apply to our common market.
Over the last 7 months of work, we conducted investigations and took 7 new protection measures. The distinctive and interesting thing to note in respect to these measures is that two of them (on combine harvesters, for example), were taken as preventive steps.
The start of the investigation had already made clear that there was obvious damage to the sectors concerned, and so we decided to impose a higher import duty that would remain in place until the end of the investigation. If the investigation conclusively confirms these conclusions, the higher import duty will remain in place.
A relatively swift mechanism of protective measures will probably help us, as markets continue to liberalise, to protect our markets from unfair competition, dumping and so on. We have already sensed though, that the Commission’s active stance is causing some irritation abroad.
We are training our personnel, including through special educational programmes, so as to prepare them to be able to defend in the World Trade Organisation bodies and in courts our actions as fair investigations conducted in accordance with all the rules and regulations.
Even with all of current economic difficulties, integration is clearly having benefits, and we need to build on this.
The question is how best to do this. Acting on the instructions issued by the three presidents in preparation for the summit that will take place at the end of May, we are working together with the three governments on drafting a package of measures to develop and deepen integration. This process involves a big and detailed discussion of what we have not yet managed to do over the preceding phases of our work, what tasks are most urgent, what can be done over the medium-term perspective, and how to package all of this into the agreement on the Eurasian Economic Union.
This discussion is underway actively now. We will have its conclusions ready for the presidents to discuss at the summit, and ready to give a further boost to this process and giving it actual form.
As for the external setting, the entire work is being carried out under the scrutiny of this external setting. Various assessments are being made, including political ones. But if we take our partners, I think that three basic scenarios have shaped up.
First, Kyrgyzstan is a EurAsEC member that has expressed a desire to join the Customs Union. A working group on Kyrgyzstan’s accession to the Customs Union has just completed a major round of talks. We are creating a road map. And, according to plan, we will present this road map to the presidents for their approval by the end of the year. By the end of the year we will present not only things that remain to be done, but also things that have been worked through to a level when they need only to be reviewed. This is real work related to analysing the current situation in Kyrgyzstan, the risks that exist for Customs Union member economies, any possible transitional provisions and so on. This is what we are currently working on for you to review by the end of the year. Those are the issues pertaining to Kyrgyzstan.
On the other hand, we have EurAsEC observers – Ukraine and Armenia – which are also interested in not losing the organisational opportunities for cooperating in the sectors that have become supranational. Before, they could discuss it at the Intergovernmental Commission level, but now, this needs to be discussed at the supranational level.
And so, we signed – first with the Government of Ukraine and then with the Government of Armenia, — a memorandum on cooperation between them and the Eurasian Economic Commission, which ensures, within the framework of the powers existing at the Commission level, interaction with government bodies on various issues, first and foremost, trade matters, as well as technical regulations.
In essence, this creates a progressive dialogue partnership in various areas, including in terms of free trade regime for all CIS nations. This is also a fairly important, interesting vector that is based on the CIS free trade agreement and is being built based on cooperation in trade dialogues, dialogues on technical regulation, and possibly many others in the future.
The third scenario is that of nations with whom we began talks for the first time (this is a landmark decision) on creating free trade regimes. It’s Vietnam. Again, everything was prepared in accordance with your decision. And the delegation of government representatives of the three nations and the Commission launched these talks in March. The schedule for this work has been established.
This year, there will be four full-scale rounds of negotiation meetings, not counting videoconferences, between experts and other meetings. And this work is fairly interesting for us in all respects, not just as a precedent for building these sorts of relations on the basis of modern demands and global best practices, but also because Vietnam is our traditional partner, a very interesting, rapidly developing nation in Southeast Asia. And so we hope that we will manage this work within a reasonable timeframe, although these types of talks do take a long time, and we will report to you on the results.
Vladimir Putin: Mr Khristenko, with regard to Armenia, we have no common border between Customs Union nations and Armenia. What decision can be made here? Are there any limitations in this respect?
Viktor Khristenko: Logistics, transport and infrastructure-related limitations due to the lack of a common border are, of course, important. They are important for commodity flows.
In current economic situation, for economic cooperation overall, commodity flows are, of course, key. And indeed, the commodities vary: it’s one thing to transport fresh fruit and vegetables and another to transport cut diamonds. And in this sense, the logistics and transport-related opportunities differ significantly.
As for the equipment and technology of managing such separate locations as if they are one, including customs territories, there is the European experience, so it’s not an issue. Otherwise, not a single island state would ever be able to function in any union.
Moreover, the service sector has a dominant position in modern economy and largely determines the economies’ image. And logistics territorial limitations do not even come into play when it comes to telecommunications and financial services.
And in this respect, in case of Armenia, logistics limitations could in some way constrain its development potential, in the sense of developing a traditional economy, but in terms of our cooperation, I think we need to look for answers to our questions without retreating or limiting ourselves. Logistics limitations are not an impassible obstacle for deeper cooperation.
Vladimir Putin: Thank you.