Pros and cons of integration with Russia

In 2012 Belarus will receive maximum benefits from the integration with Russia. However, their positive effects will be short lived and by the end of 2012 the negative effects will show.

On 19-20 December Moscow will host a meeting of the Eurasian Higher Economic Council, during the meeting participants will decide on the entry into force of a package of 17 framework agreements which form the legal base of the Common Economic Space (CES) as well as on the staffing policy of the Eurasian Economic Commission. Also various events within the EurAsEC, Customs Union and CSTO will take place.

Major Russian oil producers and Belarusian customers on December 15 signed a protocol on the terms for the supply of crude oil to the Belarusian refineries in the next four years. The document was signed by the heads of Russia’s Gazprom neft, Lukoil, Rosneft, Surgutneftegaz and TNK-BP, and Belnaftakhim and the Mazyr and Navapolatsk refineries. Russian companies in 2012 will supply 21.5 million tons of crude oil to Belarus (3.5 million tons more than in 2011).

The agreement abolishes awards for Russian companies. Instead, Belarus abolished a requirement for oil suppliers to ensure supply for the Belarusian domestic market and agreed to return the processed oil back to Russia (5.8 million tons).

The most important consequence of the Russo-Belarusian agreements on oil supply and refining is that Belarus will refuse the alternative oil supplies. This in turn means that Belarus is missing a chance to plan risks and to ensure its energy security.

Both gas and oil agreements’ terms are clearly defined for 2012 only and in 2013 pricing or other conditions could be amended. In 2013 the negative effects of the agreements could hit Belarus as by then, with the launch of alternative transit routes, Russian transit of energy resources will become less dependent on Belarus.

On December 16, the WTO Ministerial Conference approved the WTO accession of Russia. This, among other things, implies that as of January 1, 2012 Russian tariff policy will have to meet the WTO commitments. Given that the Customs Union import tariffs policy is common for all members, Belarus will be affected by these changes.

In particular, these changes will affect a very sensitive trading position for Belarus as heavy engineering industry. As well, all the deferments Belarus fought for within the Customs Union will become meaningless. Since the main market for Belarusian machinery is Russia, a sharp decrease of import tariffs (eg for trucks),will make it hard for Belarusian manufacturers to stay on Russian markets.