The business refused to integrate into the Eurasian economic Union

Business declined from migration within the Eurasian space. Experts expect that companies will move to countries with more lenient tax regimes, but this has not happened due to active participation of the authorities of Russia, Kazakhstan and Belarus in the economy

Unreasonable expectations

The idea of competition of jurisdictions within the Eurasian economic Union (EEU) is not realized, says the Eurasian development Bank (EDB) in its annual report on Eurasian integration. The company refused to change jobs in search of a lower tax burden, as was expected by the experts, and the reason for this was the active participation of government in the economy.

“Serious hope” for increased competition jurisdictions were at the commencement of the Customs Union (2011-2012), said the EDB. The company, according to analysts ‘ expectations, could move for example from Russia, where the level of tax burden in 2008-2014, the average was 34% of GDP in Kazakhstan, with a load of 14%. In 2013, Kazakhstan registered 10.7 thousand enterprises with Russian capital, in 2016, their number increased slightly — to only 11 thousand, follows from the data of the Russian chamber of Commerce, who provided the EDB. These 11 thousand, mainly small business and importers, is a significant part of foreign business in Kazakhstan (the country registered 33 thousand foreign companies), but the stable growth dynamics here and not there, analysts say.

“Competitive jurisdictions in the Eurasian Union is not. For countries, the potential “magnets” business is a minus. Countries potential donor, that’s a plus: they do not lose the tax base. In General, the EEU is a disadvantage: the higher level of mobility of companies and capital would increase the overall efficiency of the integration Association and encourage countries to compete for the business, improving the investment climate,” says RBC’s Director of the EDB Centre for integration studies Yevgeny Vinokurov.

The customs Union within the EAEC started to operate in 2010, 2015 entered into force the Treaty on the Eurasian economic Union. It includes Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

What is the meaning of jurisdictional competition

Jurisdictional competition could push the authorities in different countries to reduce administrative barriers due to the fact that the business will be able to “vote with their feet” and move to where it is easier to work with, explained in the report. Potential beneficiaries of this competition are international companies as well as small and medium businesses. State that the companies leave, may face falling revenues. As a host country for foreign business, will be rewarded with extra income and business growth.

Failed state

The main obstacle for competition jurisdictions was the high share of the state in the economy, experts say EDB. In 2015 in Russia it was 70% — twice more than in 2005, said in a recent FAS report on the state of competition. The role of monopolies is growing, as state intervention in the production process — all of which are hallmarks of state-monopoly capitalism. The government “undertakes an increasing amount of the organizational and economic functions”, pointed out Antimonopoly service.

No better situation in other countries of the Eurasian Union. According to the EBRD, Belarus, the share of state participation in the economy is 70-75%, in Kazakhstan — about 60%. The world average is only 30-40%.

Thus, to change the location of almost no one, says the EDB. State-owned companies allow this technically can’t, and of the remaining 30% this is not possible and from companies with a clear geographical reference. Remain only 10% of the potentially mobile small and medium business.

Prevent jurisdictional competition and “the key issue of the Eurasian integration” — non-tariff barriers. Now on the market there are more than 450 such obstacles. “About 80% of them belong to the category of a valid Treaty on the EAEU (the so-called exceptions and limitations). The rest of the barriers in fact do not meet the standards and legal field of the Union,” the report said.

The third problem is orientation of the business to work with government and state-owned companies. In the EAEU “huge” amount of state purchases to $270 billion a year, almost as much as total exports ($300 billion). The total procurement market in the Eurasian Union exists, but it is inaccessible for foreign companies, especially small and medium business, sums up the EDB.

When you create a Customs Union a bet on the growth of competition of jurisdictions has not been done, says the Director of the research center of international trade Ranhigs Alexander Knobel. Now the stagnation in this area can be regarded as an indication that the Eurasian economic Union “is not working at full capacity,” but that “a second-order effect,” he adds.

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