A tax maneuver can refocus integration inside the EEU

A panel discussion, Challenges of Eurasian Integration in the Context of Modern Trade and Economic Processes in the Post-Soviet Territory, was held as part of the Gaidar Forum 2015.

The outlooks of Eurasian Economic Union (EEU) and the issues interfering with the development of Eurasian integration were discussed. The following issues were discussed: EEU member countries integration with each other, the agenda of the Eurasian Union integration with non-CIS countries, the EEU operation issues amid sanctions. Ukraine's European integration and Russia's foreign economic strategy under the current circumstances were covered in a separate discussion.

The key issue of integration inside the EEU is domination of the redistribution pattern over the productive pattern. The applicable export duties on energy resources result in a transfer from Russia to its EEU trade partners. The estimates show that its value amounted to approximately $9,2bn in 2011, $11,8bn in 2012, $9,4bn in 2013 and $5,7bn in 2014. The recent decline is associated with the fall of oil product supplies to Belarus, the growth in purchases of Belorussian motor gasoline and the transfer to swap supplies of crude oil to China via Kazakhstan.

In 2015, the projected growth in the volume of transfer is associated with Belarus not having to compensate Russia's budget for the duties on oil products exported to third countries. The volume of transfer must subsequently diminish using a tax maneuver in the oil production industry, however the volumes of redistribution of resources at the cost of Russia's budget will remain fairly high. Belarus benefits most of all on a relative basis: 8.7% of GDP in 2015, 7.7% of GDP in 2016, 6.5% of GDP in 2017. Armenia has substantial benefits too: 1.6% of GDP in 2015, 1.5% of GDP in 2016, 1.4% of GDP in 2017.

The Russian tax maneuver in the oil and gas industry may serve as a tool designed to refocus integration from the redistribution pattern to the productive pattern. Otherwise, Russia's budget will sustain losses one way or the other from the EEU and accession of new member states. It seems to be reasonable for the state to collect the rent from the oil and gas sector through the mineral extraction tax, which may provide more incentives to relax non-tariff barriers in selling and buying goods and services, because the relaxation will become the principal source of enhancing the competitiveness of the integration association and each of its members individually.

Alelsandr Knobel, Ph.D. in Economics, Head of Foreign Trade Department