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The Centre for Integration Studies publishes the first comprehensive assessment of the effects of non-tariff barriers on mutual trade in the EEU and provides recommendations as to how to remove them

The Centre for Integration Studies publishes the first comprehensive assessment of the effects of non-tariff barriers on mutual trade in the EEU and provides recommendations as to how to remove them

17 March 2015

A large-scale poll of enterprises in Belarus, Kazakhstan and Russia suggests that non-tariff barriers account 15% to 30% of the value of exports.

St. Petersburg, 17 March 2015. Non-tariff barriers are a significant problem for the mutual flows of goods and services between the countries of the Eurasian Economic Union (EEU). This is the main finding of report titled An Assessment of the Economic Effects of Lifting Non-Tariff Barriers in the EEU, which provides the first comprehensive assessment of the effects of non-tariff barriers on mutual trade and makes recommendations as to how to remove them. The report has been prepared by Eurasian Development Bank’s (EDB) Centre for Integration Studies based on a poll of 530 Russian, Kazakh and Belarusian exporters.

In the research non-tariff barriers are divided into two groups. The first group includes non-tariff barriers such as sanitary and phytosanitary measures, technical barriers to trade, quotas, prohibitions, and quantitative controls. The second group comprises price and competition controls (the institute of ‘special importers’, sale restrictions, restrictions on public procurement, various subsidies). The second group of barriers is often referred to as “sand in the wheels,” because it hinders the movement of goods and in principle can be fully removed. The specialists from the Centre for Integration Studies have come to a conclusion that this very group of barriers possesses a more negative influence on trade. Therefore, the main policy efforts should be directed at removing “sand in the wheels” of mutual trade.

The report provides a number of scenarios as to how reduce non-tariff barriers. In the base scenario, Belarus will derive the highest benefits: its real GDP is expected to grow by 2.8% and welfare by an aggregate of 7.3%. In Kazakhstan, welfare will grow by 1.3% and real GDP by 0.7%. The effects for Russia will be less significant: welfare will improve by 0.5% cumulatively and real GDP 0.2%. These differences are due to the greater size of its economy and the lower importance for Russia of trade inside the EEU, compared to trade with other countries.

The research has shown that reductions in non-tariff barriers will be particularly important to the producers of machinery and equipment, because in this sector the costs associated with non-tariff barriers are the highest. Pulp-and-paper and food enterprises, as well as the producers of leather, shoes, resins and plastics will also see significant benefits.

In addition, high costs associated with the non-tariff regulation of trade are a problem for the exporters of chemicals (to Belarus and Russia), processed timber (to Kazakhstan and Russia), agricultural produce (to Belarus), as well as electrical, electronic and optical equipment (to Kazakhstan).

On the whole, Belarusian exporters estimate non-tariff barriers in their trade with Russia and Kazakhstan at 15% of the value of their exports, Kazakh exporters at 16% for exports to Russia and 29% for exports to Belarus, and Russian exporters at about 25% for exports to each of the two other countries.

In addition to these barriers, Belarusian companies incur significant costs because of measures taken by Kazakhstan and Russia to restrict access to public procurement, and because of sanitary and phytosanitary regulations. Kazakh and (especially) Russian exporters point out to significant costs they have to incur because of financial measures imposed by Belarus. This barrier is also often a problem for exporters to Kazakhstan.

Poll respondents estimated the barriers to mutual trade in financial services as a percentage of financial institutions’ costs. Respondents from Belarus estimated the barriers associated with accessing the markets and operations in Russia and Kazakhstan at a level of 10% of their costs. Kazakh companies believe that both groups of barriers account for 10% of their costs in Belarus and 15% in Russia. Russian companies in the financial sector estimate barriers at 13% and 15% in Belarus and at 15% and 10% in Kazakhstan.

The main barriers for Belarusian transport companies in the market in freight transportation by road in Russia and Kazakhstan are the non-refundable VAT on fuel, the limited “green card” insurance (up to EUR 3,000) in Russia, operational restrictions (for example, the standard axle load in Russia), restrictions on the transportation of large-size cargo (in Kazakhstan), and too many inspections (for example, of the drivers’ rest time) and penalties. Belarusian transport companies believe that the removal of barriers and restrictions in the transport sector (in particular, the permit system) would make it possible to double freight traffic over three years and expand the fleet of cars by 30-40% a year. Respondents from Kazakhstan believe that barriers and restrictions in Russia increase the cost of transport services by an average of 10-20%.

“Non-tariff barriers reduce the effectiveness of the EEU single market. In particular, they hinder the development of, and cooperation between, high-tech sectors,” says Evgeny Vinokurov, Director of the Centre for Integration Studies. “The gradual unification and lifting of non-tariff barriers is one of the most important issues on the agenda of the Eurasian Economic Union in the following years.”

The full version of the report is available online.

Additional Information

Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.