EURASIAN ECONOMIC COMMUNITY: INTEGRATION IN THE SERVICE SECTOR

Muhamedjan BARBASOV


Muhamedjan Barbasov, Ph.D. (Econ.), board member, Association of Producers of Equipment and Services for Mineral Resource Users (Republic of Kazakhstan)


Over ten years ago, a new political and economic situation began to take shape in the post-Soviet space. In these years, the economic potential of the newly independent states has tended to wane, and their advance to sovereignty has been marked by the erection of mutual administrative, customs, tax, information, currency and other barriers. Today we realize, however, that there are plenty of objective reasons for establishing mutual ties between these countries on a new basis, through allround political, economic and social integration. In this context, integration processes within the framework of the regional economic grouping known as the EurAsEC appear to be dynamic, although the recent shifts in the center of gravity in decision-making within the community toward Russia will, in my view, prevent the member states from drawing closer together and lead to a rerun of the CIS history. The references of Russian experts to the practices of the European Union are hardly appropriate in our conditions, since the EurAsEC partner countries are still in the early stages of the integration process, when consensus is the most acceptable form of decision-making, considering the urge for sovereignty in the Central Asian countries and historical memory.

One should bear in mind that alongside objective conditions conducive to integration (common history and culture, similar economic, technological and living standards, closely interconnected communications systems, coinciding goals and purposes of economic development in the EurAsEC partner countries), there are centrifugal trends as well. These are due to disparities in economic development levels and in the pace of reform, divergences in national legal regulation, complexities in interstate relations, and conflicting interests in some matters.

Nevertheless, the deepening interdependence in the development of these countries is due to the globalization of present-day international life. So, the formation of the EurAsEC is well in line with the processes of international division of labor, for example, in the service sector.

The prospects for building common markets of goods, services, labor and capital in the EurAsEC countries (within the framework of a single economic space), with due regard for many specific aspects peculiar to the countries of this region, are most significant. And their detailed analysis, in my view, will help to find well-considered solutions. One of the key tasks facing the community is integration in the service sector.

Services in Todays World Economy and in the EurAsEC Countries

Over the past 20-25 years, global services markets have been developing most dynamically. The advanced countries have been moving toward a qualitatively new type of economic and technological structure in which services play an ever more important role as a productive resource. Involvement in this sphere of activity of a sizeable part of material and labor resources is one of the most prominent trends of recent decades. Services are an ever more significant integral part of the economy of individual states and of world trade, and make a growing contribution to the formation of the productive forces over the long term. The qualitative aspects of human life and work are increasingly dependent on the development of the service sector. The special type of commodity production taking shape in this sector calls for capacious markets and for dynamic market interaction on a regional and global scale. But effective trade in services (supply of services) implies territorial proximity between service suppliers and consumers, which is a specific feature of such a market.

The service sector is largely determined by the group of science-intensive industries: telecommunications, computer technologies and networks, credit, financial and insurance services, transport, education, health care, tourism, etc. Its importance for the national economy is evidenced by the developed countries, where the service sector has been growing faster than material production. Thus, in the late 1990s it became the largest sector in the economy of these countries: overall, the services now account for 65-82% of their GDP, 63-75% of aggregate employment, and over 50% of the total volume of investment. They also account for around 50% of total consumer spending in the developed countries.

Changes in the ratio between trade in goods and services in a countrys foreign trade turnover are a kind of indicator of its economic development level. Experience shows that an expansion of the service sector has become a condition of scientific and technological progress and national economic development in general. Whatever the distinctions between the leading countries of the world, direct government involvement in regulating the service sector is on the decline virtually everywhere, with a simultaneous increase in the states role and responsibility in matters of formulating the strategy for the development of the services market, financing key programs, providing a legal framework for activities in this area, and exercising control functions. National systems for government regulation of the services market in the developed countries have common features: use of diverse fiscal, monetary and price instruments at various levels of authority, of the government appropriations mechanism, etc. In order to regulate economic relations, to chart the main lines and set the pace of development of the various service industries, governments have been making active use of tax legislation, monetary policy and other opportunities. Selection of priorities in the apportionment of budget appropriations and in providing government subsidies, tax breaks and other privileges helps to regulate the trends and processes in this area.

It is customary in world practice to protect national markets, that is, each country creates discriminatory conditions for foreign businessmen, including foreign producers of services. That is why barriers in trade in services primarily include corresponding laws, executive orders, departmental instructions, nonrecognition of foreign certificates of competence, diplomas, etc. On the whole, services help to globalize the world economy, although the legal and political barriers to international exchanges in this market are higher than in commodity (goods) markets.

Today the development of the service sector in the EurAsEC countries falls far short of world levels. Even the growth in the production of services recorded in recent years is no more than relative and appears to be such only against the background of a deep slump in material production. Whereas in the area of trade in goods in these countries one will find well-established institutions, rules and regulations and long-selected national and regional priorities, the service sector still lacks many of the key elements of a proper foreign trade regime and requires certain adjustments in legislation. National policy priorities in this area are just being selected, and the EurAsEC governments are just beginning to create regulatory and formative conditions and to establish protective barriers. Service producers from third countries have sought to take advantage of the situation, branching out into the markets of the EurAsEC countries virtually without hindrance.

Meanwhile, the incipient interaction between producers of some types of services in the EurAsEC countries is a sign of intraregional requirements for integration in this area. These requirements dictate the need to establish a common legal and institutional framework and interaction mechanisms, with subsequent efforts to create conditions for the development of a regional services market. For example, trade in some services in the EurAsEC countries is already being regulated by separate interstate agreements covering various industries, but this process reflects the current short-term interests of economic agents and has no purposeful or systemic basis in the form of national or regional trade and economic policy. This mostly applies to communications and information services, the banking system, transport services, tourism and education.

The EurAsEC countries usually come into contact with global trade in services once they are confronted de facto with foreign services on their own domestic markets. These are spontaneous processes, and over the long term they hold no promise for national economic operators, leaving them no market scope for future activity, although the phenomenon itself has a positive side to it as well, since it gives them access to advanced technologies in organizing trade in services.

For a purposeful development of the service sector within the framework of a single economic space, the EurAsEC countries, in my view, need to take vigorous step-by-step action (both individual and integration).

Prospects for a Common Services Market in the EurAsEC Countries

Under Arts 37 and 38 of the Treaty on a Customs Union and a Single Economic Space, adopted on 26 February, 1999, the signatory states (Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan) are to formulate and adopt a common program for the development of trade in services within the framework of a single economic space. The program should take account of international rules and regulations, and should also help coordinate a policy with respect to third countries in this area of trade. The practical implementation of these provisions should result in concerted action by the member states in the matter of according each others economic operators national treatment in access to their services markets; agreed access to the markets of the partner states for services provided by third-country economic operators; coordinated interaction with global services markets; and development of the production of services and national trade in them with due regard for regional and international division of labor.

Performance of these tasks requires concerted efforts taking account of current trends in global and national services markets, development of formative and regulatory mechanisms, coordination of talks being conducted by the EurAsEC states on accession to the World Trade Organization (WTO), and adjustment of national priorities in the service sector. This kind of work should evidently combine state and interstate regulation on the scale of the entire regional integration grouping, with mandatory observance of the national interests of the partner countries.

Such activities should result in the formation of a common services market (CSM) of the EurAsEC countries. It is highly important, in my view, to observe the principles of equality among the partner countries, respect for sovereignty, priority of joint decisions, mutual advantage, phased action, and uniform methodological approaches. Regrettably, compliance with these principles is already being obstructed by the shift in the center of gravity to Russia, which has been trying, so to speak, to privatize the adoption of integration decisions. Nevertheless, a common services market is already taking shape in the EurAsEC countries. The first thing to do here is to go over to international standards of services statistics, since the methodology now being used in some of the partner countries has been borrowed from material production and takes no account of the specific features of services, while some of their types (e.g. transport services) in a number of EurAsEC countries are still recorded as belonging to the real sector.

Another urgent task is to create favorable trade, political and legal conditions for service suppliers operating in foreign markets and help them gain access to these markets on terms accepted in world practice. In this context, it is necessary to create a system for protecting the receptive internal market against experienced foreign rivals pursuing an aggressive business strategy. Against the background of a rapid expansion of international trade and globalization of the world economy, this problem presents an ever greater challenge as the partner countries move toward a single economic space. So, they should agree on measures to protect their domestic markets and national producers against expansion by third-country service suppliers with due regard for the need to maintain conditions for fair competition, and should develop a single methodology and a single set of principles, forms and methods of such protection. In particular, it is high time to harmonize the terms of access, investment and activity in these markets for third-country economic operators. Measures giving access to these markets (and their regulation) should be synchronized by the partner countries and applied on a concerted basis, in accordance with uniform rules and regulations.

The implementation of such measures will make it possible, in my view, to develop ones own services markets and make effective use of such advantages of economic integration as market scope, cooperation and specialization in this field of activity, and joint protection of interests in a global competitive environment.

But mutual extension to each other of national treatment in services markets, concerted interaction with global markets and third-country producers, development of a single set of rules for third-country access to national markets, and other things are only possible given coordinated and step-by-step formulation of a common policy of the EurAsEC states regarding services markets.

Opportunities and Sequence of Steps

In the process of integration in the service sector, it is important to bear in mind that the goals and purposes of individual EurAsEC countries are bound to have their peculiarities due to the specific national models of economic development, cultural and historical traditions, etc. That is why, in my view, the intention of Russian specialists to adopt a common program for the development of services markets at this early stage of integration is erroneous. Such a program is bound to include averaged-out or one-sided standards, approaches, goals and purposes, which will ultimately hold back its implementation.1 It would make sense to devise a common program at subsequent stages of integration on the basis of national programs to be launched by that time, with due regard for the realities of the services markets in the partner countries and for the relations taking shape not only on world markets in this area, but also with the WTO, considering that the talks on entry of the EurAsEC states into that organization have recently been stepped up, especially in the service sector.

As regards the present stage of integration, the most important thing now is to build economic and institutional bridges (implementation mechanisms) in the service sector in order to facilitate interaction between economic operators. This implies free access to EurAsEC markets for each others service suppliers, a single set of restrictions on third-country access to these markets, and a coordinated policy in relations with the WTO and other international organizations operating in this area.

It is important, in my view, that national programs for the development of domestic markets in the EurAsEC countries should provide a basis for a common services market and should set the limits of integration processes in matters of cooperation and specialization of economic operators in these markets, the rules of interaction and trade policy with respect to third countries and international associations (WTO, EU, etc.).

All things considered, one could suggest the following sequence of steps to be taken in forming a common services market of the EurAsEC countries.

First, an analysis of the state of national services markets: formation of a system of statistics for the provision of services with due regard for global accounting standards; assessment of the main areas, degree of development and specifics of services (on the basis of national statistics and analysis data); systematization of basic national schedules of services on the lines of their classification under the General Agreement on Trade in Services adopted within the WTO framework (GATS/WTO) with due regard for national specifics in the emergence of the respective markets; selection for each country of priority (sensitive) services from the standpoint of their share in the countrys gross domestic product, trade balance and impact on the socioeconomic situation, and also traditions and culture.

Second, elaboration of regimes for interaction between the partner countries: a comparative analysis of national market regulation regimes, drafting and adoption of documents within the EurAsEC framework to determine the system of mutual relations in this sphere; identification of constraints on access to national markets for services and service suppliers from partner countries; formation of a contractual framework for extending national treatment to partners; approximation of national market regulation regimes to GATS/WTO rules and regulations; an analysis of the situation and charting of ways to increase mutual trade in services along priority lines.

Third, establishment of a regime for the free provision of services within the EurAsEC: decision-making with due regard for GATS/WTO rules and regulations and international practices; drafting of recommendations for the development of national and regional markets in order to provide broader opportunities for national producers, to meet mutual interests and resolve urgent tasks of cooperation in various services; drafting and implementation of proposals on specialization and cooperation between service producers of the partner countries and on extending their mutual presence in each others markets.

Fourth, development of a coordinated treatment in trade with third countries: elaboration of a single policy and a single set of terms and measures to regulate access to the domestic markets of the partner countries for third-country service suppliers; adoption of decisions on establishing a coordinated treatment in trade with third countries; invigoration of activities by national service producers on world markets along competitive lines.

Fifth, formation of a common services market within the framework of a single economic space: steps to bring closer together and unify national legislations, tax policies and administrative practices so as to create equal conditions for the operation of service suppliers from the partner countries; preparation of a common program for the development of the service sector and for regulating the activities of EurAsEC producers on services markets; monitoring of the necessary domestic procedures and of the progress in bringing national legislations into line with the decisions adopted by the integration authorities; monitoring of the situation, of the progress in implementing CSM tasks and their impact on the state of the national economies; assessment of the economic effectiveness of integration decisions on various kinds of services, measures in specialization, cooperation and other service supplier activities; laying down of guidelines for further cooperation and legislative improvements in this area.

To put all these approaches into practice, it is first of all necessary to set up within the EurAsEC framework a Commission on Trade in Services (CTS) as a coordinating executive body to deal with matters relating to services markets.

As we have seen, these markets in the EurAsEC countries are just taking shape, and services issues are the most vulnerable item on the agenda of talks and interaction at an international level. That is why the prospects for the emergence of a common services market within the grouping, and also the advancement of the partner countries common interests in relations with third countries and their associations, including the WTO, will largely depend on the activity and professional work of the CTS. Integration practice shows that in order to operate dynamically and effectively, the commission should be a standing one and should include representatives of all the partner countries and staff members of the EurAsECs executive bodies.

A CTS constituted along these lines should begin by carrying out an in-depth analysis of the state of the partner countries markets, and also of external factors shaping trends in world services markets. On the results of such analysis, the CTS is to develop conceptual approaches and ways of forming a common services market in the EurAsEC countries. The advance to such a market should be phased. Efforts to work out a common stand on a single methodology for services statistics, on identifying the key service industries for each country and drawing up a common basic schedule of services will make it possible to bring the positions of the partner countries closer together in real practice.

As we find from the above, the first thing to do is to coordinate the various constraints used by the EurAsEC partners as instruments for the internal regulation of diverse service industries. It is particularly important to harmonize the terms of access to and investment in national services markets, and also the forms of activity of third-country economic operators on these markets.

Given the different levels of development of the service sector in the EurAsEC countries, and also their different prospects at entry into the WTO, a parallel adjustment of their national legislations and harmonization of the legal framework for regulating their services markets should evidently be carried out right from the very beginning on the basis of the GATS/WTO.

As the basic guidelines for the various stages of CSM formation are put into effect, the partner states are to frame a common policy for their domestic markets and agree on a set of rules for interaction with third countries and for entering global markets.

Such a mechanism for the formation of a CSM based on an analysis of the trends and dynamics of global services markets and of the respective markets of the partner countries, on international rules and standards in shaping and regulating the service sector has been proposed by us proceeding from the actual conditions in the EurAsEC countries. In this way, it will be possible to accomplish a pressing task of integration: to set up a common regional market of services in the partner countries within the framework of a single economic space.

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The recent geopolitical events underway in the Central Asian countries have largely shifted the accents in integration processes within the EurAsEC framework and the approaches to them. The new situation could lead to a different sense of political and economic expediency, with a marked adjustment of the membership and objectives of this organization. Such a turn of events will, of course, change the priorities in the sequence of integration steps, but the prospect of building a common services market (given the maintenance and operation of the EurAsEC) will obviously remain a topical issue.


1 This is quite possible under the present rules of decision-making in the EurAsEC, where 40% of the votes belong to Russia, 20% each to Belarus and Kazakhstan, and 10% each to Kyrgyzstan and Tajikistan.


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