07MOSCOW3708, RUSSIA: TRADE MINISTRY CONTINUES WORK TOWARD THE

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Reference ID Created Released Classification Origin
07MOSCOW3708 2007-07-30 12:44 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO5864
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #3708/01 2111244
ZNY CCCCC ZZH
P 301244Z JUL 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 2487
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 003708 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS, EB/TPP/BTA 
NSC FOR TMCKIBBEN 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
USDOC FOR 4231/IEP/EUR/MEDWARDS 
 
E.O. 12958: DECL: 07/29/2017 
TAGS: PREL ECON ETRD BO RS
SUBJECT: RUSSIA:  TRADE MINISTRY CONTINUES WORK TOWARD THE 
RUSSIA-BELARUS UNION STATE 
 
REF: MOSCOW 88 
 
Classified By: Acting Econ Counselor Kathleen Doherty, reasons 1.4 (b) 
and (d). 
 
1.(C) Despite public predictions that the Russia-Belarus 
Union State is dead, Russian trade officials continue to meet 
Belarussian officials at the working level to plug away at 
the economic aspects of the 1999 agreement.  Although trade 
between the two countries has increased significantly in 
recent years, it is still heavily skewed toward oil and gas. 
To help diversify exports, the Ministry of Economic 
Development and Trade (MEDT) has proposed the establishment 
of joint production projects in sectors of historical 
Belarussian expertise.  Russian trade officials are also 
working to resolve a number of troublesome economic issues, 
including property rights and tariff differences with third 
countries.  Moscow supports Belarussian WTO entry, and 
provides modest technical assistance to the GOB.  The 
ambitious customs union envisioned among Russia, Belarus and 
Kazakhstan has been put on hold for the foreseeable future. 
Despite the efforts of trade officials to move the Union 
State forward, progress is hampered by politics. 
 
2.(C) Emboffs recently met with Victor Kalmykov, Deputy 
Director of Department of Trade Negotiations at the Ministry 
of Economic Trade and Development (MEDT).   Kalmykov leads 
GOR negotiations with Belarus on trade and economic issues, 
except for the issues of oil and gas.   He stated that MEDT 
continues to conduct discussions with Belarus under the 
umbrella of the 1999 Union State Agreement, which already has 
an extensive base of 120 bilateral agreements, most in the 
economic sphere. 
 
3.(C) According to MEDT statistics, Russia-Belarus turnover 
trade has doubled in the past four years - from $10 billion 
in 2002 to $20 billion in 2006.  Given that first quarter 
2007 trade reached $5 billion, MEDT expects year-end totals 
to be over $20 billion.  Despite this strong growth, the GOR 
would like to see the structure of trade evolve away from 
natural resources.  Currently, 54-56% of Russian exports to 
Belarus are oil and gas, followed by equipment at 10-11%, 
which Kalmykov points out are similar to export statistics to 
the EU.  Kalmykov added, however, that trade statistics with 
Belarus are difficult given the nearly open border between 
the two countries. 
 
4.(C) Investment statistics are less impressive.  In 2006, 
Russian investment in Belarus was about $400 million, and 
Belarussian investment in Russia about $320 million.  To help 
encourage greater trade and investment outside the natural 
resources sector, the Union State has a program aimed at 
establishing joint government production projects focused on 
the electronics, medical equipment and biotechnology sectors, 
all areas of Belarus specialization during the Soviet period. 
 He also noted that significant inter-regional cooperation is 
underway, pointing to a recent visit to Minsk by Moscow Mayor 
Yury Luzhkov that resulted in $1 billion worth of deals, 
mostly in construction. 
 
5.(C) Kalmykov reported that current Union State discussions 
are working to resolve problems in the areas of property 
rights, based on an agreement reached in January 2006, and on 
harmonizing differing tariff rates with third countries. 
However, Kommersant recently reported that the goal of 
creating a trilateral customs union with Russia, Kazakhstan 
and Belarus has been put on hold until at least Russia and 
Kazakhstan have acceded to the WTO.  Meanwhile, customs 
issues remain uncertain.  Although the customs border between 
the two countries has de jure been eliminated, de facto both 
Russia and Belarus conduct random checks of shipments.  The 
free movement of people between the two countries has been 
criticized by Duma deputies as a potential entry point for 
illegal migrants or terrorists. 
 
6.(C) Regarding Belarus' bid to join WTO, Kalmykov stated 
that Russia provides some technical assistance and "help on 
methodology" to Belarus, but is not "pushing" for its 
accession.  He indicated, however, that he does not consider 
U.S. opposition to Belarusian accession to be helpful, as he 
believes that it would benefit Belarus to be part of the 
international trading system.  He noted that Russia and 
Belarus, which have not yet negotiated a WTO bilateral market 
access agreement, would have to resolve several difficult 
issues, particularly in the agricultural sector. 
 
MOSCOW 00003708  002 OF 002 
 
 
 
7.(C) Comment: Despite MEDT efforts to make progress on the 
other economic aspects of the Russia-Belarus Union State, 
they are often overwhelmed by political differences and oil 
and gas dynamics.  Although tensions over subsidized gas 
prices and oil transit have subsided since their peak in 
January (reftel), there remains an uneasy truce.  As long as 
Russia is dependent on the Druzhba pipeline to supply oil to 
Europe, Belarus has leverage in its economic dealings with 
the GOR.  There
is no question, however, that Russia would 
prefer to lessen its dependence on Belarus as a transit state 
and that it is moving to do so with various proposed 
bypasses.  If Russia is successful in securing alternative 
routes to its lucrative markets, Belarus will lose a key 
bargaining chip.   End Comment. 
RUSSELL

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