Identifier
Created
Classification
Origin
09MOSCOW3082
2009-12-23 04:13:00
CONFIDENTIAL
Embassy Moscow
Cable title:  

WHAT RUSSIA'S TRADE NEGOTIATORS ACCOMPLISHED IN

Tags:  ETRD EAGR ECON PREL RS WTO KZ BO 
pdf how-to read a cable
VZCZCXRO3927
PP RUEHCN RUEHGH RUEHVC
DE RUEHMOA #3082 3570413
ZNY CCCCC ZZH
P 230413Z DEC 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5744
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHTA/AMEMBASSY ASTANA PRIORITY 0359
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/WHITE HOUSE WASHDC PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 5442
C O N F I D E N T I A L SECTION 01 OF 04 MOSCOW 003082 

SIPDIS

DEPARTMENT PLEASE PASS TO DEPT OF AGRICULTURE
COMMERCE FOR BROUGHER/EDWARDS
WHITE HOUSE ALSO FOR USTR HAFNER AND KLEIN
GENEVA FOR WTO REPS
USDA FAS FOR OCRA/HORGAN, RIKER, NENON; ONA/TING

E.O. 12958: DECL: 12/24/2019
TAGS: ETRD EAGR ECON PREL RS WTO KZ BO
SUBJECT: WHAT RUSSIA'S TRADE NEGOTIATORS ACCOMPLISHED IN
SIX MONTHS - STRUCTURE AND OPERATION OF THE RUSSIA,
BELARUS, KAZAKHSTAN CUSTOMS UNION (PART 1 OF 3)

REF: A. MOSCOW 2381

B. MOSCOW 2204

C. MOSCOW 2000

D. MOSCOW 1538

E. GENEVA 1001

MOSCOW 00003082 001.2 OF 004


Classified By: A/DCM Susan Elliott, Reasons 1.4 b&d.

C O N F I D E N T I A L SECTION 01 OF 04 MOSCOW 003082

SIPDIS

DEPARTMENT PLEASE PASS TO DEPT OF AGRICULTURE
COMMERCE FOR BROUGHER/EDWARDS
WHITE HOUSE ALSO FOR USTR HAFNER AND KLEIN
GENEVA FOR WTO REPS
USDA FAS FOR OCRA/HORGAN, RIKER, NENON; ONA/TING

E.O. 12958: DECL: 12/24/2019
TAGS: ETRD EAGR ECON PREL RS WTO KZ BO
SUBJECT: WHAT RUSSIA'S TRADE NEGOTIATORS ACCOMPLISHED IN
SIX MONTHS - STRUCTURE AND OPERATION OF THE RUSSIA,
BELARUS, KAZAKHSTAN CUSTOMS UNION (PART 1 OF 3)

REF: A. MOSCOW 2381

B. MOSCOW 2204

C. MOSCOW 2000

D. MOSCOW 1538

E. GENEVA 1001

MOSCOW 00003082 001.2 OF 004


Classified By: A/DCM Susan Elliott, Reasons 1.4 b&d.


1. (U) Introduction: This cable is the first in a three-part
series presenting major features of the Russia, Belarus,
Kazakhstan Customs Union (RBKCU),which was finalized on
November 27 with the signing of most binding agreements.
This cable covers the major structure and decision-making
process of the RBKCU. The second cable will review the
principal points regarding tariffs and non-tariff
regulations. The third cable will discuss how the RBKCU
could potentially affect Russia's WTO accession. Post is
concerned that the legal void caused by staggered
implementation dates, as well as insufficient preparation
time for customs officers, could create massive delays at
customs points starting January 1, 2010 that could adversely
affect U.S. exports. End Introduction.

Background
--------------

2. (U) Discussions on the RBKCU began in 1994. On June 9
Prime Minister Putin announced that the Customs Union would
come into being on January 1, 2010, and that the three
countries would now apply for WTO accession as a group (Refs
C & D). Putin's announcement provided the principal momentum
for the current entry into force of the RBKCU. Russia's
trade negotiators halted almost all work on WTO for the last
six months in order to focus exclusively on creating the
RBKCU. Their principal tasks were to create a harmonized
Common External Tariff, harmonized non-tariff regulations,
and a harmonized Customs Code. The three countries have now
signed more than 50 agreements to bring the Customs Union to

fruition, over half of them on November 27 in Minsk.

Relationship to EurAsEc
--------------

3. (U) The RBKCU represents the core of the Eurasian Economic
Community (EurAsEc),as its members are the three founding
countries of the group. As a result, the RBKCU plans to use
many of the legal structures already in existence in EurAsEc
as its own institutions. Some of these authorities, such as
the Interstate Council, have already been approved for use by
the RBKCU (see para 5),but some are still pending
authorization, such as the EurAsEc Court (see para 10).


4. (U) Any country wanting to joint the RBKCU must follow
EurAsEc's membership procedures to join. As EurAsEc members
become "ready" they may be included in the RBKCU. Other
current members of EurAsEc are Tajikistan and Turkmenistan,
with Armenia, Moldova and Romania as observers. Uzbekistan
was once a member, but now has an undefined observer-like
status.

Structure
--------------

5. (U) The RBKCU Secretariat provides organizational and
technical support to the Commission and is located in Moscow.
It is responsible for the day-to-day operations among the
member states and publication of information about the RBKCU.
On the management board of the Secretariat are Executive
Secretary Sergey Glazyev and an unspecified number of Deputy
Secretaries. The Secretariat currently has 70 employees,
increasing to 135 by November 1, 2010. Of these employees,
22 will be officials, 113 will be support staff. The
Secretariat will also contain a Center for Customs Union
Statistics to collect trade statistics, and carry out studies
on the effectiveness of different RBKCU policies (such as
tariff revenue distribution).


6. (U) The RBKCU Commission is the single permanent
regulatory body of the Customs Union and makes most of the
policy-level decisions for the RBKCU. The Commission is also

MOSCOW 00003082 002.3 OF 004


responsible for the execution of decisions made by the
Interstate Council, and the operation and development of the
Customs Union. It will meet in Moscow once a month. The
Commission is composed of one representative from each member
government, approved by the Interstate Council. It currently
consists of Russia's First Deputy Prime Minister Igor
Shuvalov (also ChaiQrmanQ of the Commission),Belarus Deputy
Chairman of the Government Andrei Kobyakov, and Kazakh First
Deputy Chairman Umirzak Shukeev.


7. (U) The supreme body of the RBKCU is the Interstate
Council of EurAsEc, which operates on two levels. At the
level of the Heads of State are Presidents Medvedev,
Lukashenko and Nazarbayev, who will meet once a year. At the
level of the Heads of Government are Prime Ministers Putin,
Sidorsky, and Massimov, who will meet twice a year.

Decision Making
--------------

8. (U) Each member country will submit to the RBKCU
Secretariat, for consideration by the Commission, proposals
for the introduction, use, modification, or termination of
measures to regulate foreign trade in goods. The voting
procedure for the Commission gives Russia 57% of the votes,
and Belarus and Kazakhstan each 21.5%. Decisions will
require a two-thirds majority, unless international treaties
that form the legal basis of the RBKCU stipulate a consensus.
If there are insufficient votes (i.e. Russia does not agree
with a unified Belarus-Kazakhstan position),the Commission
will refer the question to the Interstate council at the
level of Heads of State. Similarly, if one of the member
states disagrees with the Commission's decision, the issue
can be appealed to the Heads of State, who will consider the
issue and decide by consensus. At this point it is unclear
what decisions the Commission will refer to the Heads of
Government and how the two levels of the Interstate Council
will decide duties.


9. (U) All decisions by the three bodies of the RBKCU will be
published on the Custom Union's website (www.tsouz.ru) upon
approval. Decision will be published at least one month
before entry into force of any new provision or agreement.

Right of Appeal
--------------

10. (U) The RBKCU envisions two mechanisms for appeal: the
EurAsEc Court and the Expert Council. According to the RBKCU
agreements, the mission of the EurAsEc court will be to
ensure uniform application of the treaties that make up the
RBKCU. If there are any disputes between the RBKCU members
regarding the interpretation and application of the Customs
Union treaty, negotiations between the countries will be the
first step. (Note: The Forum for these negotiations is not
defined. End note.) If negotiations produce no agreement by
the parties within six months, the issue goes to the EurAsEc
Court. The amendments to transfer the EurAsEc Court from its
existing functions of the new RBKCU functions are scheduled
to be adopted on April 1, 2010.


11. (U) The Expert Council will be central to the
administrative appeal mechanism. RBKCU documents state that
the Expert Council will include no fewer than five
representatives from each member state with the necessary
expertise and experience in law, international trade, and
other areas related to dispute resolution. These experts
will be recommended by their respective governments, chosen
by the Commission, and approved by the Interstate Council to
serve three-year terms. The Interstate Council at the level
of Heads of State decided that the governments of Belarus,
Kazakhstan, and Russia should submit candidates for the
Expert Council to the Commission of the Customs Union by
December 25, 2009. During a December 7 briefing, Russia's
Lead Trade Negotiator Maxim Medvedkov stated that the Expert
Council will hear any cases before the imQplemQentation of the
EurAsEc Court; however, this provision is not specified in
the agreements published so far.


MOSCOW 00003082 003.5 OF 004



12. (SBU) The RBKCU documents also state that any economic
entity (i.e. company) of the member states may appeal to the
Expert Council regarding the Commission's compliance with the
Customs Union treaties. The Secretariat, in consultation
with the governments of each member state, will form a
conciliation commission made up of three experts from each
country to review the appeal. The Experts Council will
recommend revision to the Commission's decisions, but will
not make recommendations for compensation. There are several
issues of concern with this appeals structure: a) the
agreements currently do not make provisions for appeals by
foreign companies or actors; b) the Expert Council does not
seem to have any "teeth," as it can only make
recommendations; c) there are no provisions for compensation
for losses; and d) the appeals system is more focused on
resolving disputes between member states than between traders
and the RBKCU.

The Customs Code
--------------

13. (SBU) Although the harmonized Customs Code, which governs
the conduct of customs activities, has been approved, it will
not come into force until July 1, 2010. There are several
decisions on customs issues still pending before the
Commission, which are not due to be approved until April

2010. The transition period also provides the three
different customs services time to become familiar with the
code and to conduct training exercises. Currently Russian
and Kazakh Customs Services are actively engaged in pilot
exercises for conducting joint customs control in a number of
border regions. The January-July 2010 period, in the
absence of a unified Code, will see uneven implementation of
customs procedures as all three existing national Codes will
still be in force. When asked about this weakness in the
enforcement structure, Russia's lead RBKCU negotiator, Andrei
Tochen, could only respond "well, as you know, customs
officers cannot enforce the laws of other countries."

Customs Duties
--------------

14. (U) While the harmonized tariff table uses Euros as its
assessment currency, duties will be paid in the currency of
the country of the port of entry and transferred to the
respective central banks using the current rate of exchange.


15. (U) Since deciding in August (ref A) that customs duties
would be collected in the country in which the goods enter,
the RBKCU member countries have finalized the distribution
terms. This system, still pending approval by the National
Central Banks, is expected to enter into force on April 1,

2010. Russian sources have indicated that Russia expects to
receive around 90% of the customs revenue. It is unclear how
customs revenue will be distributed during the January-April
period.

Licenses and Certifications
--------------

16. (U) The procedures for the issuance of import licenses
will remain the same for Russia, as the RBKCU has adopted
Russia's procedures. The RBKCU grandfathered in all current
licenses, so they will remain valid until their previously
stated date of expiration. Russian officials, and RBKCU
agreements, are unclear however, on whether there will be
mutual recognition of licenses issued by each country, and
whether the licenses should come from the country of the
points of entry or the country of the final point of sale.
This gap in information will affect the renewal process. As
it stands now, companies may have to apply for licenses in
all three member countries at the same time. This issue has
received some clarification for SPS certifications because on
December 11 the Heads of Government approved an agreement
establishing "mutual recognition of accreditation of
certification bodies for testing laboratories that perform
work on conformity assessment, as well as sanitary,
veterinary-sanitary measures and plant quarantine."

Dues/Payments

MOSCOW 00003082 004.5 OF 004


--------------

17. (U) Contributions to the RBKCU are proportional to the
voting proportions of the members and will be assessed in
Russian Rubles. For 2010 the Customs Union's budget will be
USD 8.9 million of which Russia will pay USD 5 million and
Belarus and Kazakhstan, USD 1.9 million each.

Key Dates for the Customs Union
--------------

18. (U) Jan 1, 2010 ) CustQoms QUnion becomes a legal entity
- Entry into force of harmonized tariff
table
April 1, 2010 - Entry into force of unified customs duty
collection system
- All harmonized documents for SPS regulations
and
procedures due to Commission
July 1, 2010 ) Entry into force of harmonized Customs Code
- Proposed entry into force of harmonized SPS
regulations and procedures
- Closing of border check points between Russia
and
Belarus
- Proposed creation of EurAsEc Court
July 1, 2011 ) Closing of border posts between Russia and
Kazakhstan

Comment
--------------

19. (C) On paper, the RBKCU seems to have a straightforward,
simple structure, with clear lines of responsibility and
decision-making, and a defined appeals process. Senior
Russian Trade Negotiator Maxim Medvedkov and several other
Russian interlocutors insist that this simple structure
creates a more attractive and defined market, and will
therefore increase economic activity in all three countries.
Post has serious doubts, however. The gaps in regulations
and implementation outlined in this cable create serious
legal voids. The staggered implementation dates produce a
lack of clarity on customs procedures and enforcement,
collection of duties and the appeals processes. Vagueness on
issues such as licensing and certification procedures open
the door to confusion and possible abuses of the system by
unscrupulous traders and customs officials. As well, the
speed with which the RBKCU agreements were finalized means
that there has been no time to ensure that all of the
bureaucrats involved in these processes will be up to speed
on the details and ready to address issues when they come up.
In short, we do not know what is going to happen, and we are
concQerneQd that when problems arise, many of the structures
needed to resolve them will not exist and the officials
responsible for answering questions will not know what to do.
As a result, goods could stack up at the border, and this
chaotic situation could continue for several months or
longer. Russian claims of the RBKCU increasing economic
activity for the custom union's members remains a goal for
which the jury is still out.

Beyrle