SES Meeting May 2004

Report from the meeting of the Presidents of the Single Economic Space (SES) countries: Russia, Ukraine, Belarus, and Kazakhstan in Yalta in May 2004 during which pledges were made to implement this agreement

Copied from: RFE/RL NEWSLINE Vol. 8, No. 98, Part I, 25 May 2004

FOUR CIS PRESIDENTS VOW TO PROCEED WITH CREATION OF SINGLE ECONOMIC
SPACE... The presidents of Russia, Ukraine, Belarus, and Kazakhstan -- Vladimir Putin, Leonid Kuchma, Alyaksandr Lukashenka, and Nursultan Nazarbaev, respectively -- pledged in Yalta on 24 May that
they will proceed with the implementation of the treaty on the creation of the Single Economic Space (SES) they signed in September (see "RFE/RL Poland, Belarus, and Ukraine Report," 23 September 2003), international media reported. "The primary objective of the next stage in the evolution of the [SES] is to formulate as quickly as possible a workable regulatory and legal basis for economic cooperation," Interfax quoted Putin as saying in Yalta. The four governments are to present 61 draft agreements in extension of the SES treaty during the next SES summit in Astana in September. Putin proposed that the first package of agreements include documents on foreign trade, customs tariffs, and the business environment. Nazarbaev recommended beginning the development of the SES by establishing a customs union, while Kuchma suggested a free-trade zone (see also End Note below). "Russia, which is by far the dominant player in the new body, has been seeking increasingly to reestablish its influence in the former Soviet Union, in competition with the United States," "Business Week" commented in its 31 May issue. JM/VY

...BUT PLANS MAY COLLIDE WITH REALITY. At the same 24 May press conference, President Putin admitted that he spent 90 percent of his time in arguments with the other SES leaders about the adoption of a
single "economic constitution," but instead it was decided to adopt the 61 separate agreements. Putin also said that the sides will define the priority of the agreements at the September summit in Astana. Meanwhile, participants of the talks failed to overcome some basic differences, izvestiya.ru and polit.ru reported. Lukashenka told journalists that initially the four countries wanted to join the World Trade Organization as a single entity, but because of differences will do so separately. Another disagreement is between
Russia and Kazakhstan, which insist on creating a customs union, and Ukraine that opposes it. VY

END NOTE

YALTA SUMMIT PRODUCES LITTLE OF SUBSTANCE

By Jan Maksymiuk

The presidents of Russia, Ukraine, Belarus, and Kazakhstan -- Vladimir Putin, Leonid Kuchma, Alyaksandr Lukashenka, and Nursultan Nazarbaev, respectively -- gathered in the Ukrainian sea resort of Yalta on 23-24 May to discuss further moves in developing the Single Economic Space (SES), the body they created in September 2003. The agreement on the SES commits the signatories to establishing a free-trade zone and a customs alliance as well as ensuring free movement of commodities, labor, services, and capital between the four countries. It also calls for a high level of political coordination of economic and financial policies of the four states.

The Yalta meeting, apart from the reiterated declaration of the four leaders to pursue closer integration within the SES framework, has brought little substance. The presidents agreed that, in order to proceed with further integration, experts need to prepare 61 draft accords and some 50 normative acts that could give some shape to the hitherto amorphous SES idea. These documents are to be viewed by the four presidents at their subsequent summit, in September in Astana. "Each should lose something in order to find something else at the end of the road," Kuchma reportedly said in summing up the Yalta summit on 24 May.

However, what specifically should be lost and/or found by the SES signatories remains unclear. The presidents in Yalta seemed to disagree as regards SES priorities. Putin said the first package of documents to make the SES a reality may be signed in 2005 or early 2006. According to him, this package should include accords on the harmonization of foreign trade, the introduction of common customs tariffs, and the creation of the same competition environment for businesses of the four countries. Putin also stressed the need to set up a supranational "regulatory body" for pursuing SES policies.

Ukraine insists that the formation of the SES should be started from the creation of a free-trade zone without any reservations. According to Kuchma, it is sufficient to adopt some 13 documents in order to achieve this goal. Kuchma expressed hope that these documents could be prepared and signed as soon as in the first quarter of 2005. In its economic relations with Russia, Ukraine is primarily concerned with Moscow's collection of value-added tax on Russian oil and gas exports according to the country-of-origin
principle, that is, in Russia. The introduction of a free-trade zone would switch this collection to the country-of-destination principle, a move that could give Ukraine's budget some $800 million annually.

The Kazakh president said in Yalta that the SES formation should be started with the establishment of a customs union. "Otherwise, I don't understand what we are going to do next," he was quoted as saying. "And afterwards we need a transport union." Nazarbaev stressed that such an approach to the creation of the SES would allow the four states to present the same conditions while applying for membership in the World Trade Organization.

Lukashenka was less clear than Kuchma and Nazarbaev in his vision of the SES. On arriving to Yalta, he announced that Belarus is unlikely to receive any additional advantages in relations with the other three countries at the current stage of the SES's development. "[Belarus] has advanced further than the others in relations with our major partner, the Russian Federation, and the economic measures that we are taking now in the framework of the four are behind the level that exists between Belarus and Russia," Lukashenka added. But following the summit talks, he assured journalists that Belarus does not "regret" joining the SES even if its economic interests are "satisfied" up to 90-95 percent in the Russia-Belarus Union. "But we are international people and advocate the processes of integration," he argued. "Moreover, the remaining 5 percent is not insignificant either."

In theory, the creation of a trade alliance with the same rules of the game for a market of some 225 million consumers is not a bad idea. Today's European Union was also preceded by the European Common Market, a much looser economic alliance than the current union run by an army of bureaucrats from Brussels. But some in the post-Soviet area, particularly in Ukraine, are afraid that Russia is primarily seeking an alliance that could give it political levers of control over republics that left the USSR in 1991. The Ukrainian opposition also argues that the full implementation of the SES treaty will deprive Ukraine of any prospects of integrating with Europe in the future.

In an apparent move to address such fears, Putin stressed in Yalta that the SES will not hinder its members' moves to participate in "European integration processes." "None of these countries is entering an [already existing] organization," he said. "It would be wrong to think that someone is dragging someone else into some sort of a regional organizations by force. We have gathered together in order to work out, through discussion, rules of economic behavior that are favorable to each of the four countries."

It would be hasty to conclude right now that the SES is facing a brighter future than that of the Commonwealth of Independent States (CIS). The CIS, inaugurated by the Slavic "core" of the Soviet
Union -- Russia, Belarus, and Ukraine in December 1991 -- and shortly afterwards joined by Kazakhstan, has since then turned into nothing more significant than a talking shop. On the other hand, the creation of the SES may be Russia's last chance to firmly anchor some of the post-Soviet states in its sphere of political and economic influence. Therefore, Russia may now be ready to make some bolder moves and/or concessions in order not to lose this chance.

Whatever the final outcome of this latest reintegration attempt in the post-Soviet area, one can already say that the SES formation will be the principal issue on the political agenda of Ukraine and Belarus for many years to come. Brussels has recently unambiguously suggested that these two country have no prospects of joining the EU. And one old, wise saying maintains that nature abhors a vacuum.

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