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PP RUEHCN RUEHGH RUEHVC
DE RUEHMOA #3082 3570413
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P 230413Z DEC 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 5744
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
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RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHTA/AMEMBASSY ASTANA PRIORITY 0359
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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