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The Customs Union: Crisis Developments

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These findings are based on the official statistics of the CU (Eurasian Economic Commission), analysis of statements and comments made by the representatives of government, diplomatic and business circles of the Republic of Belarus, Republic of Kazakhstan and the Russian Federation on the situation in the national economies and the social sphere in the framework of the Customs Union.

The results of the analysis showed that the problems and risks identified by us in March 2013, not only deepened by September, but also formed persistent negative trends.
Countries of the Customs Union demonstrate reductions in the mutual trade. Thus, according to the data for the first five months of this year, the mutual trade within the Customs Union and the Eurasian Economic Commission was down 9.9 per cent from the same period last year. The decrease compared to the same period last year happens each month, which is confirmed by the official statistics (see Annex 1). The largest drop in trade performance is observed in Kazakhstan and Russia. In May 2013 the trade performance of Kazakhstan tumbled 15.8 per cent compared to the same period last year, and the trade performance of Russia tumbled 15.1 per cent. This trend indicates a steady reduction of internal trade volume in the CU.
The poor dynamics in the mutual trade between the member countries is caused by the facts that the exports are mainly raw materials and the competitiveness of non-oil commodities is low. The main problem of the turnover between the members of the CU is still a small amount of goods that the participants are willing to offer each other, excluding energy sources. In addition, the increased competition as a result of lower prices for imported goods hits some industry markets. This creates the conditions for crowding out of some domestic producers from the market and for hostile takeovers.
Representatives of Kazakhstan believe that, despite the growth of trade within the Customs Union since 2010, its establishment had little effect on the positions of Kazakhstani goods in the markets of Russia and Belarus, but rather strongly affected the country’s structure of imports, where the share of Russian products has increased. At the same time the commodity structure of exports and imports, as well as the proportion of the volume of these products, have not changed much after the establishment of the CU.
Russia has resorted to external and internal trade wars, as a way of protecting the domestic Russian market.
Low growth rates of the trade within the CU, as well as the crisis developments in the Russian economy, contribute to waging trade wars against internal and external partners on specific product lines. This supports our predictions made in March of this year.
To date, Russia is going through a difficult situation in the economy and in the public sector. The Ministry of Economic Development of the Russian Federation believes that the Russian economy is in a state of stagnation. At the same time, Moscow fears the beginning of a slump, which will lead to a rise in unemployment. The plans of the Russian government to adopt a balanced budget for the fiscal 2015 are obviously impractical. According to the estimates of the Ministry of Finance of the Russian Federation, the budget deficit in 2014 will be at 0.6 per cent of the GDP, which is 0.4 per cent higher than the figure in its earlier forecast. However, such an index will not be achieved, because the reduction of 650 billion roubles in oil and gas and other revenues is expected in 2014, while maintaining the level of expenditure. The proposal of the Ministry of Finance of the Russian Federation to the Ministry of Defence of the Russian Federation to postpone some of the costs of the state armaments program for several years in order to ensure stability of the Russian budget is indicative of problems in the public sector.
According to the Federal State Statistics Service, the GDP growth in the second quarter of 2013 was only 1.2 per cent, well below the forecast of the Ministry of Economic Development. For comparison, the economic growth in the second quarter of 2012 was 4.3 per cent over the same period of 2011. The GDP growth declined to 1.6 per cent in the first quarter of 2013. Thus, 2013 may turn out to be the worst year in terms of economic growth for the entire presidency of Mr. Putin.

Financial statements of large-scale enterprises in the Russian Federation indicate that the fall in investment since April is more than 5 per cent. This is indirect evidence and a leading indicator of pitching into recession.
It is expected that the Russian government will have to cut down on its budget. Thus, the amount of federal revenues in the first half of 2013 was 48.6 per cent of the projected amount approved by the Federal Law on the Federal Budget for 2013 and for the Planning Period of 2014 and 2015. At the same time, Moscow will try to avoid a budget sequester, which will create new political tensions in Russia.
This means that the Kremlin is interested in establishing a maximum level of protectionism and import substitution for goods from third countries and for goods originating in the countries of the Customs Union with the aim of maximum load of Russian companies, growth of budget revenues and GDP.
A similar situation can be observed in Belarus. Thus, the GDP of Belarus in January to July 2013 in current prices was 340.1 trillion roubles and increased compared to the same period last year, in comparable prices, by 1.4 per cent. The forecast for 2013, in accordance with the Decree of the President of the Republic of Belarus of 25 September 2012 No. 418, anticipates its growth by 8.5 per cent that, given the current momentum, is not possible.
Establishing of the CU has led to increase in prices of particular commodity groups. On one side this is happening due to increase in customs tariffs leading to increase in prices for commodities imported from third countries, and, from another side, due to equation of prices within the CU. As a result, Kazakhstan has to resort almost to fixing of prices for socially important commodities and introduction of state regulation of prices. There is a significant increase in primary commodities observed at the market against decrease in purchasing capacity. Thus, in the RB there is constant high inflation rate which has been 36.1 per cent according to the results of 2012.
Protectionism is able to provide a temporary boost to industrial growth within the CU. However, such measures may cause industrial upgrading of the member countries to inhibit.
So far, the protective barriers affect trade. Thus, sources in diplomatic circles in Kazakhstan linked the reduced trade performance of the country in 2012 with protective barriers set by other participants. This is particularly true for food products, in some cases, these barriers are of technical nature. Discrimination against Astana is happening in the market of alcoholic beverages, confectionery (Russian legislation allows to import only a part of the product range) and in import VAT matters. For example, the Russian-made juice relating to child nutrition falls under the rate of 10 per cent, whereas the same juice made in Kazakhstan is taxed at 18 per cent.
We would like to draw your attention to the fact that the food production sector is equally developed in Kazakhstan, Belarus and Russia. This explains the fact that Russia is creating trade conflicts primarily in these sectors.
Despite the fact that the factor of rapprochement between Ukraine and the EU is indeed present in the motives of behaviour of the Federal Service for Supervision of Consumer Rights Protection and Human Well-Being, the underlying economic causes of introduction of protective barriers by Russia are precisely the crisis of development and trade inside the CU. This is confirmed by the fact that Russia has recently banned imports of not only Ukrainian goods, but those of other countries (including EU members), as well.
Thus, on August 12, 2013, the Federal Service for Veterinary and Phytosanitary Surveillance reported on the inspection of 6 enterprises producing food of animal origin in Turkey: three of them were specializing in dairy products and other three — in fish products and seafood. On the same day the Federal Service for Veterinary and Phytosanitary Surveillance restricted imports of Fonterra (a New Zealand-based company) products because of the causative agent of botulism. On August 15, 2013, 133 Germany-based companies were excluded from the list of food suppliers “because of the numerous detections of violations of the requirements of Russia and the Customs Union during the laboratory safety monitoring and systemic deficiencies recorded during inspections of German enterprises”.
In recent weeks, Russian officials have made claims to the quality of Polish food products and to the Polish suppliers. It started with Polish pork and continued 4 days later with Polish vegetables and fruits in connection with the alleged presence of nitrates and pesticides in the imported fruit and vegetable products. At the same time, Moscow does not confirm its accusations with specific facts. It must be emphasized that the intensification of the Russian-Polish trade claims is against the background of growth of exports from Poland to Russia by 12.8 per cent (EUR 3.9 billion) in the first half of 2013, while imports of Russian goods to Poland fell by 12.4 per cent (EUR 9.5 billion). The drop was primarily due to the decline in world prices for oil and gas that Warsaw buys mainly from the Russians.
This confirms our findings that Moscow is imposing trade sanctions against its economic partners to hide and balance the negative and crisis developments in its own economy and the one of the CU, and to create the illusion of effectiveness of the Customs Union.
We would like to note that not only the Kremlin uses this tactic, but also the official Minsk.
This is clearly shown by the situation where the leadership of Belarus attempts to regain control over the export of potash without the participation of Russian business by unprecedented action against Uralkali. We would like to note also that this tactic does not add to the stability of the Custom Union, but leads to political conflicts that may ultimately affect the functioning of the Union.

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Modest results of the meeting in Geneva

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Presidents Joseph Biden and Vladimir Putin met in Geneva on Wednesday, June 16. Both separately noted that the talks went well. “There’s been no hostility,” Putin said. “On the contrary, our meeting took place in a constructive spirit.” Biden meanwhile declared “the tone of the entire meeting… was good. Positive.”

The spirit may have been constructive and the tone positive, but no major step forward was made to reset the chronically strained relations between Moscow and Washington. Although the meeting went as well as could be expected, major differences remain on a range of issues, including cyberattacks and human rights.

Putin rejected accusations Russia was involved in cyberattacks against U.S. institutions and declared that the U.S. government was the main offender in this area. On human rights he said that the U.S. supports opposition groups in Russia in order to weaken it, since Washington openly sees Russia as an adversary. Putin reiterated that Moscow did not see domestic politics as up for negotiation or discussion. He also said that pro-Trump demonstrators who stormed the Capitol on Jan. 6 were merely expressing reasonable political demands, for which they now faced punitive jail terms.

For his part Biden ensured the summit would be seen as the opposite of Donald Trump’s notably cordial meeting with Putin in Helsinki three years ago. He said that he had pressed the Russian leader on a range of issues, such as human rights, and that he would continue doing so. “No President of the United States could keep faith with the American people if they did not speak out to defend our democratic values, to stand up for the universal rights and fundamental freedoms that all men and women have, in our view,” Biden said he told Putin. “That’s just part of the DNA of our country… It’s about who we are.”

On the modest plus side the two leaders agreed that their ambassadors, who were recalled amid the rising tensions, should return to their posts in the near future. In addition, the U.S. and Russia would start “consultations” on cyber-related issues. As for the overall tone of the meeting, the Russian president paraphrased Leo Tolstoy by saying “there is no happiness in life only glimmers of it. Cherish them.”

“I think that in this situation, there can’t be any kind of family trust,” Putin concluded. “But I think we’ve seen some glimmers.”

Media commentary around the world reflected one common theme: at least it is reassuring that there is a dialogue. “The US-Russian summit in Geneva confirmed the low expectations for the meeting,” commented the Neue Zürcher Zeitung, Switzerland’s leading daily:

There were hardly any concrete agreements, but at least the American president is no longer inviting attack from his Russian counterpart. The chorus of commentators was pretty unanimous in the run-up to the summit from Moscow to Washington: There was no significant room for concessions or a change of strategy, either on the American or on the Russian side. The expectations therefore had to be set extremely low.

These low expectations were noted by the Frankfurter Allgemeine Zeitung as well, which found it encouraging that the meeting lasted considerably longer than expected. The paper also thought it a hopeful sign that “the Russian President, who had already made the Pope and the British [sic!] Queen wait, arrived on time.”

“The summit flowed along conventional diplomatic lines:” wrote The Guardian; “a handshake, several hours of intensive talks and separate press conferences afterwards. The ghost of Helsinki was exorcised.” According to the British daily, the obvious and easy “deliverables” were achieved:

“One was to normalise the situation of Russia and America’s ambassadors…

“There will also be consultations between the US state department and the Russian foreign ministry on a range of issues including the Start III nuclear treaty, due to expire in 2024, and cybersecurity.”

The Russian media, unlike their Western counterparts, emphasize that one area of agreement in Geneva concerned the implementation of the Minsk agreements. The daily Rossiyskaya Gazeta noted Putin’s statement that Biden agreed with him that the Minsk agreements should be at the heart of the settlement in Ukraine. Quoting Peter Kuznick, professor of history at American University, the paper notes the summit was an important step in the right direction for both sides. No one expected a breakthrough, he said, but the two leaders respectfully and clearly indicated their interest in finding possible areas of common interest:

Both presidents understood each other’s ‘red lines’ and marked them more clearly. Their summaries after the meeting did not contradict, but rather emphasized and complemented each other. It seems to me that Putin was speaking to the whole world, while Biden spoke more to an audience within America, with an emphasis on human rights.

Considering the current state of bilateral relations, the Geneva summit is the maximum that could be expected. All that was deemed possible, but not obligatory, did happen, Professor Fyodor Lukyanov of Moscow’s School of Economics noted.

The conversation was businesslike and informative. This means that from the insane phase we’ve had in recent years, with normal relationship replaced by sheer hysteria, we are moving into a phase of more structured rivalry… The summit only outlined a way out of the impasse. Now we have to do all the work that is normally done before the summit. Since it was not done this time, solid steps will be prepared for some future milestone.

Prior to this meeting, Washington strengthened Russophobic sentiments in countries that follow American foreign policy. The peak of Russophobia was represented by the events in the Czech Republic, Bulgaria, but also by a number of other states which adjust it`s foreign policy to Washington’s foreign policy. Bearing in mind that at the moment relations between Washington and Moscow are not friendly, under American command, that kind of states accuse Russia constantly, including for events that happened years ago.

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Biden-Putin Geneva Summit: Even A Little More Than Nothing Means A Lot

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Was the, with little expectations, but a lot of combinations and nervousness, awaited summit of the Presidents of America and Russia, a failure? It was not. And can it be described as a success, as a breakthrough from the winter of a renewed Cold War? Again – no! So what was this summit then, what – if anything – did the Geneva meeting bring?

It was an attempt that could not be written off as a complete failure, it was an indication that – as President Biden said – there is no alternative to face-to-face talks. And it was a hint of hope that the two great powers, one a superpower and the other much more than a regional power, as President Obama mockingly called it, might be able to set out to identify common interests and work together in those areas, as well as find ways and methods. to resolve what is in dispute in their relationship. Where we should not forget the saying  by Lev Tolstoj, quoted during his press conference by President Putin: “In life there is no hope, there is only a promise of hope.”

And it is that promise of hope, what we can call the only tangible result of the summit which lasted about three and a half hours, instead of the announced five to six. Of course, this will fuel new speculations and different interpretations from those that Biden was tired and lost the concentration, to the one that the participants reached a deadlock but – not wanting to make things even worse, than they already are – simply stopped.

Of the concrete results, the world has learned only one, just one: two states are returning their ambassadors to their places: the Russian ambassador is returning to Washington, and the American to Moscow. Everything else remained in the domain of what Biden defined, correcting one journalist who aggressively asked him: “And how can you be confident, that . . .?”. He said, namely: “I did not say  I’m confident, but we ‘ll see.” And what we should see is the continuation of talks on the control and hopefully arms reduction (nuclear in the first place), the formation of a working group between the two countries that would deal with the cyber attacks, so-called hacking. Then (and again the announcement!) the possibility of talks on the exchange of arrested American citizens in Russia, ie Russians in America, as well as the approach to the problem in Ukraine based on the agreement from Minsk (confirmed by both presidents!). And what is particularly important: a joint effort to achieve strategic stability.

About this and only about this, not about the whole meeting, a joint statement by the two Presidents was published: “The extension of the New START agreement demonstrates our commitment to the control of nuclear weapons. Today, we reaffirm the principle that nuclear war cannot be won and that it must never be fought . “It may not seem like much, but it is. Today, it is!    

Both sides agreed, and the two presidents held separate press conferences, that the talks took place in a constructive atmosphere and that there were no threats from either side. Putin described Biden as a sensible and experienced politician, and Biden skillfully avoided journalistic insistence on how he explained to Putin why he called him a killer : “My explanation was good enough for him and that’s enough for me.” On the other hand, the pragmatic Putin indirectly referred to Biden’s statement, quoted so many times, that, looking Putin in the eye at a previous meeting, he concluded that he had no soul. “We do not have to look each other into eyes, searching for the soul, nor do we have to make eternal friendship”, said Putin.

A confirmation that it was a summit convened with no great expectations is the fact that neither Putin invited Biden to Moscow, nor was Putin invited by Biden to Washington. But, and again, even a little more than nothing, is much, especially when we take into account the circumstances in which the Geneva summit was held and all that happened in previous years.

Of course, the US side “recited” their compulsory program of complaints regarding Russia’s violations of human rights, including the statement that the deaths in jail of opposition leader Navalny would be “a disaster” for relations of the two countries. In doing so, Biden went a little too far, arguing that the struggle for human rights is something that is part of the American being, “it’s us,” consciously forgetting that the United States from their beginnings until the sixtieth of the last century denied basic human rights, initially even freedom, to all its colored citizens, that the first unit composed of colored Americans enlisted in the U.S. Army only in World War II (but separately from whites) , and that cases of racial discrimination even today happen practically on daily basis. Putin, as it could have been expected, used this at his press conference to counter every question related to the human rights in Russia (what was by CNN, not denying anything of what Putin said, proclaimed as a return to the methods of Soviet propaganda). Too bad no one remembered to ask what the consequences would be and for whom if Julian Assange would die in jail.

Almost “under the radar” passed a significant concession made by the United States, ie the deviation from their previous position. The intention (however, this is just the announcement) to form a working group of the two countries to deal with the cyber attacks means that in silence the accusations that such attacks were staged by Russia, the Russian secret services, and even Putin himself, were abandoned.

The atmosphere, not only the one in which the Geneva summit was held, but the one in the Western world, could be deduced the most from the behavior of journalists who were questioning the two presidents. It is neither uninteresting nor unimportant to mention that American journalists could have been present at Putin’s press conference, while Russian journalists were banned from Biden’s. press conference. But it was these American journalists who behaved at both press conferences like barking dogs (which is not to say anything bad about dogs). In their questions they insisted on confrontation, on the continuation of confrontation ( “Have you threatened to use military force ? “, was one of the questions to Biden). One of the most evident examples of pre-prepared questions, no matter what, and certainly regardless of the facts, was the one about Russians demanding that journalists of Radio Liberty (the Russian version of Radio Free Europe) register as “foreign agents “. Putin, namely, previously explained, and it is a matter of common knowledge to anyone who is familiar in the media scene, that it were the Americans who first demanded that Russian journalists in the United States register as foreign agents. Then, and only then did Russia introduce the same for the American journalists working there.

But obviously it is true that what one can do, another cannot do. Along with the sad statement that a large part of the journalists in the West, consciously or not, accepted to be turned into a propaganda weapon of the ruling.

So it is not at all impossible that Biden, although “secured” by the presence of his experts, from the Secretary of State to the Chief of the Joint Chiefs of Staff, as well as with a separate press conference, will experience in America something similar , albeit in a milder form, to what befell Trump after his talks with Putin in Helsinki. Obviously, there are strong forces in the United States (which then influence the behavior in the first place of the Atlantic Pact, but then the European Union too), which are not interested in peace and understanding, which base its existence on confrontation, on the existence of enemies. Real, or imaginary – it doesn’t matter. And obviously there is a propaganda apparatus that serves them. They simply cannot like Biden’s statement that his agenda is not against Russia, but for American people.

But if that statement becomes what will make the summit memorable (in the city of peace, as the Swiss president said while welcoming Biden and Putin), then it is entirely justified to say that the meeting, which was by no means spectacular, which lasted shorter. than it was expected, which did not result in any key breakthroughs in any area, was not in vain. Because, if there is a President in the White House whose program is not to “work against Russia” and if Putin knows that now, then there is a chance that the world will move away from the edge of general chaos into which it is inevitably pushed by the worsening American-Russian relations. Then there is, as Tolstoy would say, a promise of hope.

*The first superpowers summit that, Mr. Jakic personally covered was a Carter – Brezhnev meeting in Vienna 1979.

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Biden pushed China and Russia to rebel against one other

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Official White House Photo by Carlos Fyfe

Biden’s anti-China measures have been increasingly regular in recent years. He not only continued to encircle China with his Asian and European friends, but he also began with Russia’s ideals. Biden used the occasion of the US-Russia meeting to instigate Sino-Russian ties, encouraging China and Russia to be “anti-objective” in order to cause difficulty for China. However, Biden’s wishful thinking is clearly incorrect, because Putin has already demonstrated through actual acts that he will not be duped by Biden.

According to a transcript of the press conference posted on the White House website, Biden stated after meeting with Putin that he felt the last thing Putin wanted to see was a cold war with the US. When discussing this problem, Biden brought up China, portraying it as a “danger” to Russia. Biden stated that China is currently expanding, whether economically or militarily, and that China has “big objectives.” Russia’s economy is suffering and needs to grow. As a result, he does not believe Putin desires a cold war with the United States.

In reality, Biden has already provoked Russia on a number of topics. At this point, he abruptly shifted his advantage to Russia. There must be something odd going on. Prior to the arrival of the US-Russia summit, Biden is said to have stressed his desire to build a “solid and predictable” relationship with Russia. Some experts say Biden wants to soften his ties with “established competitors,” such as Russia, before focusing on the “new strategic competitor,” China.

At the time, Biden wanted to focus not just on fixing China’s difficulties, but also on enlisting Russia’s assistance in dealing with China. However, Biden obviously misjudged the extent of China-Russia relations while overestimating the US’s own affinity to Russia.

Prior to the meeting, Putin stated in an exclusive interview with US NBC that Russia does not consider China to be a danger. China is a friendly country that has not declared Russia an adversary, as the US has. Putin also stated that due to the nature and quality of Sino-Russian ties, Russia will not be concerned about China’s development.

In reality, not just Putin, but many officials from both countries have jointly confirmed China and Russia’s deep relationship. Previously, Russian Foreign Minister Sergey Lavrov claimed that Sino-Russian ties are at their highest in history. Wang Yi, China’s State Councilor and Foreign Minister, also stated that the “China-Russia combination” is as strong as a mountain. The more volatile the globe, the closer China-Russia collaboration. Take a strong step forward. In contrast to Russia and the United States, Putin has stated unequivocally that Russia-US ties have reached a low point in recent years.

Under these conditions, it is nearly difficult for Biden to effectively instigate ties between China and Russia. Furthermore, China and Russia have demonstrated through actual actions that the two countries’ relationship is extremely excellent, and the two sides aim to expand friendly cooperation in other areas.

Rogozin, President of the Russian National Aerospace Corporation, stated that China and Russia are considering collaboration with a variety of parties to create an international lunar research station, and he also stated that Russia may send astronauts to China’s space station. Whether Putin provided the reassurance in person or by other means, it is sufficient to demonstrate that Sino-Russian ties are quite cordial, and there is no place for Biden to succeed. So Biden believed he could persuade Russia to negotiate with China with only a few words.

He was very naïve back then. Rather of wasting time worrying about some pointless and highly dull things to deal with China, Biden should focus on his own health, particularly cognitive problems. After all, he “cannot tell the difference between Trump and Putin.” Based on the existing circumstances, Biden should not be expecting any brilliant proposals for the future growth of the United States.

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