OREANDA-NEWS. January 27, 2010. The transcript of the beginning of the meeting:

Vladimir Putin: Mr Shuvalov, the Customs Union Commission is going to meet for the first time today. It is not only its first meeting this year; it is its first meeting since the establishment of the Customs Union. And in this sense, it is a completely new departure in the integration effort. We must remember that it is the first supra-national body set up on the post-Soviet space. We are facing a number of very complex issues and the main one is how to determine the way in which to split up customs payments and - most important of all - how to deposit these moneys in national accounts. How far have negotiations progressed?

Igor Shuvalov: Mr Putin, you and the prime ministers of Kazakhstan and Belarus instructed us in June [2009] to work out this procedure. In August, we held detailed consultations with colleagues - representing ministries and the national banks - so that we could suggest balanced approaches. We are aware that we cannot propose an ideal way of splitting, because goods reroutings between our states inside the Customs Union are too numerous. At the moment we want to propose a formula under which all goods flowing into the territory of the Union's three countries and involving the new unified customs tariff are split from the total commodities moved into the territory of one or another country. In that way, we can naturally assess - over a certain period, say, one year, 2009, for example, or several years, maybe three years, - which categories of goods and in which amounts were imported into Russia, Belarus or Kazakhstan. We will use a new unified customs tariff and, judging from the total amount of money, will determine the splitting formula. This is far from an impartial formula, as it will not be able to factor in goods crossing one country to enter another, but in general is quite suitable for a start. We have agreed with our colleagues to begin a test run of the scheme in April and if it calls for any changes, we will try and propose new approaches in the second half of 2010.

The most complex things are depositing in national accounts the sums arising from charging and collecting such customs and insurance against currency risks. Take the following example: A large quantity of goods crosses the Belarusian border, and the custom duties are deposited in Belarusian accounts in Belarusian roubles. We propose an immediate conversion and the creation, with the national banks, of a mechanism to ensure against currency risks. We believe such transactions must be completed within two to three days of receiving the customs duties and we proceed from the fact that in this case we will have the fewest possible risks from fluctuations in national currencies. We are going to discuss these issues today. Finance ministers have held preliminary consultations with the national banks and have given their recommendations.

Vladimir Putin: And, of course, it should be agreed with our colleagues that all parties to this process, all signatories of the Customs Union, are completely sure that goods enter our shared customs territory according to agreed procedures and according to unified rules, in keeping with common customs duties. It must be ensured that no goods likely to create problems in our markets should cross the border of the Russian Federation, or Belarus, or Kazakhstan and enter our common customs territory.

Igor Shuvalov: We will absolutely bear this in mind, Mr Putin. I would also like to inform you that the consultations already held have raised the need to set up additional supra-national bodies, like a customs authority acting on Customs Union territory and either absorbing national customs jurisdictions or, if national customs services are left untouched, performing the functions of a certain supra-national regulator of customs issues. It will also be necessary to establish a supra-national treasury to act within the Customs Union.

Vladimir Putin: The Ministry of Finance should, of course, be actively involved in these negotiations.

Igor Shuvalov: We are working on this together.

Vladimir Putin: The next question is about our anti-crisis policies. We have determined by the end of last year the amount of money we plan to spend on these policies and agreed that we needed to improve their efficiency. A commission for economic development and integration was set up and you were appointed to chair it. First, I would like to ask you to hold a meeting of the commission as soon as possible, no later than the first half of February. And second, I would appreciate if you give more attention to support of small and medium-size businesses and to programmes to support one-company towns.

Igor Shuvalov: You have approved the economic development commission as well as subcommissions. The heads of subcommissions are currently working on their schedules and plans. The first two meetings will be held within the next few days - one on sustained development and the other on integration. These two subcommissions are headed by Economic Development Minister Elvira Nabiullina. We will focus, among other issues, on the anti-crisis plan of economic development for 2010.

In accordance with your decision, 140 billion roubles out of 195 billion has been distributed; this is open information and is available from several sources including the government website.

At the next meeting we will focus on your instructions to give special support to small and medium-sized businesses.

Vladimir Putin: And one-company towns.

Igor Shuvalov: And one-company towns. As I reported to you earlier about this programme, we have already coordinated and approved plans for pilot projects. There are some unresolved issues left relating to financing - namely, which channels to use for money flows under the programme. The initial plan was to use Vnesheconombank (VEB) as the most convenient and transparent institution. I will report to you again once we arrive at a final decision.

Vladimir Putin: The commission's brief is to deal with economic development and integration. The latter should include, as we have agreed, issues relating to the EurAsEC, the Customs Union and the common economic space. What progress has been made on the last issue?

Igor Shuvalov: Mr Putin, we are following your directive to complete the work on the common economic space in 24 months, that is, by January 1, 2012. This is a very challenging task. We will approve schedules on specific agreements soon, starting at today's meeting of the commission on the Customs Union.

As I have already reported, 20 agreements need to be drawn up and signed. They will cover the most involved issues of trilateral relations, including subsidising of agriculture and industry, adopting unified macroeconomic policies, access to transport and energy infrastructure and other issues.

Working groups have been set up; we need to approve membership today. We will be submitting draft agreements for consideration by national governments as they are prepared.

We assume that the most complex agreements will be drafted and adopted in 2010.

Vladimir Putin: My colleagues and I have agreed at a meeting in St Petersburg that the work should be completed within two years

Igor Shuvalov: That's true. We will organise agreements in packages. We are not only determined to have all of the agreements signed by a specific date. But we need to adopt "second-level" agreements, assuming the basic agreements have already been reached.

This work is especially challenging because the approaches to SME support differ across the three nations. Therefore, while bringing our positions closer, we should follow the rules and principles of the World Trade Organisation. We need to adopt the rules accepted as basic by the WTO. This will make our work easier. We are determined to achieve a common approach.

Vladimir Putin: Good. Integration of post-Soviet countries is certainly one of our priorities. At the same time, I want to ask you not to forget about Russia's WTO accession talks. Our policies should be coordinated with those of our Customs Union partners.

Igor Shuvalov: Mr Putin, we are following your decision announced in June 2009 to continue the WTO accession effort under a common entry strategy.

The Customs Union participants established a single negotiation group on WTO, led by Maxim Medvedkov from the Economic Development Ministry. He has been engaged in this work for years and is attending regular consultations in Geneva. We believe we have only a limited number of discrepancies with our key WTO partners. Once these issues are resolved, we will make a huge step toward WTO entry.

Vladimir Putin: Which partners?

Igor Shuvalov: We still have disagreements with the United States, but these issues are well known. The list is not getting longer or shorter. I visited the United States in September on your instructions and met with government officials. We told them that the current level of talks conducted by expert negotiators is no longer effective; this format seems to have exhausted its potential. Practical issues of WTO accession needs to be discussed by political leaders, who would be probably able to reach a compromise.

I also said that Russian officials - government members, the Finance Minister, the Economic Development Minister and I - were ready to provide explanations and commentaries on the common economic space and the Customs Union of Russia, Belarus and Kazakhstan.

We have already explained that the Customs Union is in no way in conflict with the WTO rules and regulations.

We are also ready, at our level, to make certain concessions on the issues still unresolved.

Unfortunately, so far, our American partners have not made any moves to motivate us to consider these concessions. Neither have they made any proposal on a better format for further negotiations.

When they do we will be able to meet them halfway.

Vladimir Putin: It looks like our negotiators will have enough work to do. This work should be continued.

Igor Shuvalov: We will do that.