FREE TRADE ZONE HUFFS AND PUFFS.

Meeting on December 16 in Moscow, the CIS Interstate Economic Committee (IEC) and Economic Council (EC) failed in their advertised goal to launch the CIS Free Trade Zone (FTZ). The CIS summit, held two weeks earlier in Minsk, had called for the follow-up meeting in Moscow of the IEC and EC for the purpose of drawing up lists of goods and commodities to be traded duty-free within the FTZ.

The meeting adjourned on a note of disagreement after Russia sought massive unilateral advantages at the expense of other CIS countries.

Specifically, the Russian delegation demanded that deliveries of natural gas–Russia’s singlemost important export commodity to CIS countries–be excluded from the FTZ provisions. To boost Russia’s budget revenues, the government wants to maintain a special surcharge on gas exports–thereby marking up the cost to consuming countries–and wants to tax those exports in accordance with the country-of-origin principle, which is incompatible with the World Trade Organization’s requirements.

To have that cake and it too, Russia reasserted at this meeting the position that the CIS Customs Union (CU) countries should jointly negotiate the terms of their admission to the WTO. That position, if enforced, would only accentuate the incompatibility between WTO membership and CU/FTZ membership, confront Kyrgyzstan–a member of both–with a difficult dilemma, and thwart Kazakhstan’s aspirations to join the WTO.

Russia also sought, in the interests of its producers, to exclude certain classes of goods from a FTZ regime. Those include: sugar, raw tobacco and tobacco products, knitwear, liquors and ethylic alcohol. The latter, a vodka ingredient, is a source of windfall profits to producers and traders on Russia’s market.

The Moscow meeting adjourned without taking any decisions. CIS discussions on the FTZ will continue focusing on creating massive exceptions from a free-trade regime before any FTZ takes shape. Russia’s position prompted Belarusan President Alyaksandr Lukashenka to comment with disappointment that “the interests that clashed were too big” (Itar-Tass, RIA, Flux, Basapress, December 16-18).

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