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RR RUEHAST
DE RUEHAST #0149/01 2710803
ZNR UUUUU ZZH
R 280803Z SEP 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC 0268
INFO RUEHTA/AMEMBASSY ALMATY 0235
RUEHAST/USOFFICE ASTANA 0289

UNCLAS SECTION 01 OF 02 ASTANA 000149 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
SCA/CEN - O'MARA 
PLEASE PASS TO USTR - BURKHEAD, HAFNER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL PGOV KZ BO RS UZ UP
SUBJECT: AND THEN THERE WERE THREE: CUSTOMS UNION BETWEEN RUSSIA, 
BELARUS, AND KAZAKHSTAN PROMISES FURTHER INTEGRATION 
 
¶1. (SBU) Summary: In the view of Kazakhstani working-level 
Industry & Trade officials, the newly announced 
Russia-Belarus-Kazakhstan customs union within the framework of 
the Eurasian Economic Community (EEC) is an acknowledgement of 
Ukraine's refusal to take part.  While the creation of the 
customs union will not necessarily lead to impediments on 
Kazakhstan's road to the WTO accession, it heralds a potential 
breakthrough in reinvigorating the EEC and bringing about a 
multi-faceted regional integration among Central Asia (minus 
Turkmenistan), Russia, and Belarus.  End summary. 
 
¶2. (U) According to press reports, Russian President Vladimir 
Putin confirmed on August 16 the creation of a trilateral 
customs union between Russian, Belarus, and Kazakhstan.  The 
decision was reached at an informal summit in Sochi of the 
Eurasian Economic Community.  (Note:  the EEC encompasses 
Russia, Belarus, Kyrgyzstan, Kazakhstan, Tajikistan, and 
Uzbekistan; Ukraine, Moldova, and Armenia have observer status. 
End note.)  Addressing other heads of state, Putin said that the 
creation of the customs union should be closely coordinated with 
the WTO accession process in regard to both the timeline and 
quality of accession.  He also stated that other EEC states 
would join the customs union later. 
 
SES IS WEAKENED: "IT'S UP TO UKRAINE NOW" 
 
¶3. (SBU) The creation of the customs union appears to be the 
culmination of a long-term effort to establish one within the 
framework of the Single Economic Space (SES).  (Note: the SES - 
comprised of Russia, Ukraine, Kazakhstan and Belarus - has long 
focused on establishing a customs union as part of its drive 
towards economic integration among the four countries.  End 
note.)  Zhanel Kushukova, Head of the Division on Development of 
Trade at the Kazakhstani Ministry of Industry and Trade, told 
Econoff that the effort to establish a customs union "has been 
underway for ten years."  In a later conversation, Damegul 
Kabiyeva, Deputy Director of the Ministry's Department on Trade 
Policy Development and WTO Accession, confirmed to Econoff that 
the focus on creating a customs union has now been switched from 
the SES to the EEC due to Ukraine's reticence.  Ukraine, 
Kabiyeva said, has been very slow in moving the process forward. 
 
¶4. (SBU) Kushukova denied that the formation of a customs union 
within the EEC spells the death of the SES, however.  The future 
direction of the SES, she explained, will be determined by 
Ukraine's actions vis-a-vis the new customs union.  "It's up to 
Ukraine now," stated Kushukova; for the moment, she said, it is 
much easier to form a customs union among the three countries. 
 
INTEGRATION IS IN THE AIR:  EEC IS REENERGIZED 
 
¶5. (SBU) Kushukova stated that the customs union will further 
liberalize the already liberal trade regime among Russia, 
Belarus, and Kazakhstan.  It will also provide additional 
uniformity to their external tariffs (i.e. import duties charged 
on goods from third countries).  Currently, she said, the trio 
shares external tariffs on 62% of goods.  The goal, she said, is 
to raise that ratio to 90%. 
 
¶6. (SBU) Russia, Belarus, and Kazakhstan have signed the bulk of 
agreements making up the customs union.  The plan, according to 
press reports, is to sign the remainder by the end of the year. 
Kushukova confirmed this goal and added that among the key 
agreements still to be signed are those that concern a common 
external tariff, preferences towards third-party countries (a 
system of preferences applied towards developing countries, akin 
to the USG's General System of Preferences), and border crossing 
regulations.  Both Kushukova and Kabiyeva made it clear that 
after all the agreements are signed, additional steps, such as 
introduction of necessary legislation and ratification, must be 
completed before the customs union goes into force. 
 
¶7. (SBU) The new customs union is widely seen as an impetus 
towards reenergizing the previously dormant EEC.  Uzbekistan's 
January 2006 entry in the EEC is another significant step in 
this direction.  The plan now is to expand the customs union to 
include other EEC countries.  The timeline for this process, 
Kushukova said, should become clearer by October. 
 
¶8. (SBU) The customs union is seen as only one aspect of a 
renewed drive toward integration among the EEC countries. 
According to press reports, Putin spoke at the Sochi meetings 
about the importance of deepening cooperation between the EEC 
and the Collective Security Treaty Organization (CSTO) and 
working to restore Uzbekistan's CSTO membership.  (Note:  CSTO 
is comprised of Russia, Kazakhstan, Tajikistan, Kyrgyzstan, 
Belarus, Armenia, and Uzbekistan [currently rejoining].  End 
note.)  In response to Econoff's question about the link between 
 
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the EEC and the CSTO, Kushukova said that the two are 
independent of each other but both are part of the process of 
"drawing closer" and "integration." 
 
¶9. (SBU) Separately, Kabiyeva stated that integration under the 
umbrella of the EEC will encompass regional harmonization of the 
pension system, education system, the banking system, and the 
telecom sector, as well as introduction of a unified transport 
corridor.  Directly involved in this work is the Minister of 
Industry & Trade Vladimir Shkolnik, who represents Kazakhstan on 
the EEC's "High-Level Group."  "We used to have the CAU, the 
Central Asian Union," Kabiyeva mused, "now we have the EEC." 
(Note: the CAU was a framework initiated in the second half of 
2005 by President Nazarbayev for cooperation between Central 
Asian states in political and economic spheres.  End note.) 
 
"WTO FIRST, CUSTOMS UNION SECOND" 
 
¶10. (SBU) Kushukova described the process of Kazakhstan's entry 
into the customs union as "parallel" with its drive to accede to 
the WTO, and not in any way impacting on accession plans. 
Astana, she added, is still eyeing 2007 as the accession year. 
In a separate conversation, Kabiyeva was emphatic that the 
working assumption in her ministry regarding timing is still 
"WTO first, customs union second." 
 
COMMENT 
 
¶11. (SBU) Comment:  Some of Putin's remarks along with 
speculation in the Kazakhstani media, suggest that the EEC 
customs union may become a mechanism by which Russia attempts to 
influence Kazakhstan's WTO accession.  Moreover, Russia, 
Belarus, and Kazakhstan's far-reaching plans to harmonize their 
external tariffs could substantially complicate Kazakhstan's WTO 
accession process if the customs union comes into force before 
Kazakhstan accedes to the WTO.  Still, it appears unlikely at 
this point that the customs union creation will occur rapidly 
enough to interfere with Kazakhstan's WTO accession, as long as 
Astana continues to make progress on the WTO front.  At the 
working level at least, Kazakhstani officials are treating the 
accession process as unaffected by the newly created customs 
union. 
 
¶12. (SBU) Comment, continued:  The customs union, a significant 
development in itself, may also serve as a catalyst for 
revitalizing the earlier dormant EEC.  With the SES apparently 
undermined by Ukraine's reticence (for now), multi-faceted 
regional integration among Russia, Belarus, and Central Asia 
(minus Turkmenistan) may be taking center stage.  Tashkent's 
newly found enthusiasm for cooperation within the EEC supports 
this vision.  On the other hand, adding Uzbekistan to the mix is 
likely to complicate and delay any plans for integration. 
Uzbekistan's economy is not compatible with the more 
market-oriented Russian and Kazakhstani economies, and achieving 
agreement with Tashkent is likely to be a long and difficult 
process.  Still, the EEC integration process may help draw the 
economies of Central Asia closer.  At the same time, it may 
further strengthen the region's gravitational pull toward Russia 
and away from South Asia.  End Comment. 
MILAS