Having already been pummeled by rising fuel prices and political instability in recent months, the creation of a Customs Union among Belarus, Kazakhstan and Russia threatens to deal yet another economic blow to Kyrgyzstan, and is exerting pressure on Bishkek to decide whether to cast its lot with Moscow or the West.
Kyrgyzstan in recent years has served as an entrepôt for Chinese goods bound for markets in the former Soviet Union. But the Customs Union stands to erect a formidable obstacle in the way of Kyrgyz traders, who have obtained Chinese goods at low prices and who have, until now, reaped sizable profits by reselling those marked-up goods in Russia, Kazakhstan and elsewhere.
Belarus’ leader, Alexander Lukashenko, signed documents, including a Customs Code, which made the Customs Union “fully operational,” according to a July 7 report distributed by the official Russian news agency RIA Novosti. The union creates a two-tiered economic system among former Soviet states, separating Belarus, Kazakhstan and Russia from Kyrgyzstan and Tajikistan. All five states remain members of the Eurasian Economic Union (EurAsEC).
With Kyrgyzstan now on the outside looking in, it will have a difficult choice to make. Bishkek already enjoys membership in the World Trade Organization (WTO), a grouping that Russia is not a member of. At the same time, some sectors of the Kyrgyz economy would clearly benefit from joining the Russia-led Customs Union. But it does not seem that Bishkek can be a member of both the WTO and the Customs Union because the tariff rates and regulations are incompatible, experts believe.
At a EurAsEC gathering in Astana on July 5, Kyrgyzstan’s provisional President Roza Otunbayeva said Bishkek is "very determined to enter" the Customs Union, the Interfax news agency reported. Tajik President Imomali Rahmon also voiced interest.
Despite the provisional government’s stated interest, it’s too early to say Kyrgyzstan’s entry into the Customs Union is a sure thing. For one, current members have not offered membership to Bishkek, although Moscow is widely believed to be interested in bringing Kyrgyzstan into the fold. More importantly, Otunbayeva’s government must contend with the skepticism among Kyrgyz entrepreneurs, who are leery that customs union membership would enhance Russia’s influence over the Kyrgyz economy.
“Russia is the main beneficiary of the Customs Union. Unable to join the WTO, it decided to create a union of its own. It pressured the Kazakh government into joining it, although most of the Kazakh people are against it,” said Talant Sultanov, a financial consultant in Bishkek.
Experts and entrepreneurs in Tajikistan are similarly suspicious. Jahongir Azizov, a Dushanbe-based economist, described the Customs Union as an “an attempt to restore Russian economic dominance in the CIS as dreamed of by [Russian Prime Minister Vladimir] Putin.”
Ultimately, opponents and skeptics in both Kyrgyzstan and Tajikistan may have no choice but to pursue membership in the Customs Union. The cost of resistance may be prohibitive. That’s because of Russia’s decision in early April to introduce a punitive tariff on refined fuel products. [For background see EurasiaNet’s archive [6]].
Gasoline prices skyrocketed in both countries soon after the introduction of the Russian tariff. For the Kyrgyz economy to improve, many in Bishkek see the lifting of the tariff as imperative. It is widely believed in both Bishkek and Dushanbe that if Kyrgyzstan and Tajikistan joined the Customs Union then Moscow would repeal the energy tariff.
“Russia wants to expand its influence and its interests in the region. Although [Kyrgyzstan and Tajikistan] are not economically prepared to join the Customs Union, Russia will want to see them join the union with some limitations,” said Aza Migranyan, professor of economics at the Kyrgyz Russian-Slavonic University in Bishkek.
Some Kyrgyz entrepreneurs say the sooner Bishkek joins the Customs Union, the better. “We should have close economic and integrated relations with Russia; Kyrgyzstan will only win from this,” said Bazarbai Mambetov, President of the Oil Traders Association of Kyrgyzstan, who is also now the provisional government’s new coordinator for the EurAsEC. “We get everything from Russia.”