Belarusian Solvents: A Tricky Path to Economic Growth
Despite the proclaimed common Russia-Belarus way to prosperity within the Customs Union, neither country is ready to sacrifice individual economic interests for this cooperation. On 24 July Russia stopped railway deliveries of straight-run gasoline – the main raw material used in solvents’ production – to Belarus. This was the culmination of this summer’s solvents conflict. The measure is timely, but is likely to result in considerable deterioration of Belarus' economy’s performance.
During the first five months of 2012 Belarusian trade and services surplus amounted to $3bn, compared to the yearly forecast of $1-1.5bn. For Belarus, which suffered greatly from insufficiency of foreign trade last year, these results were a real success. The joy has, however, faded away due to quite unexpected revelations.
The pleasant figures resulted from Belarus' evasion of its obligations under the terms of the Russia-Belarus oil agreements. Belarus started to export oil products under the label of solvents ‒ liquids used for dissolving other substances, manufactured with use of straight-run gasoline, but not classified as oil products. That meant Belarus’ economic growth is achieved at Russia’s expense.
Solvents were among most widely exported Belarusian products for a long time, but this year the growth rate of their export became almost unbelievable. The increase in export of solvents during January – April 2012 compared to January – April of last year made Belarus $1.472m. The cost of their export to countries outside the Customs Union during January – May 2012 amounted to $2.180m. In the Belarusian export structure their export’s share amounted up to 10.4%.
Rise of the Conflict
The rise of solvents’ exports attracted the attention of Russian authorities already in the spring of 2012, and the suspicions that Belarus' exported oil products under the solvents’ label started to grow. On the official level there was no place for such concerns until June 6, when Russia’s ambassador to Belarus Aleksandr Surikov noted that “Belarusian import of Russian oil products increased several times, including four times during 2012”. He also added that “Belarus imports more than it needs for internal consumption” and that “in the Customs Union some reports of solvents and thinners, not being subject to duties, have appeared”.
The Head of the State Customs Committee of Belarus quickly assured authorities that all oil products’ deliveries were legal, but this did not satisfy Russia. On 15 June, Dmitry Medvedev instructed the authorised Russian state bodies to analyse the situation with the solvents. The investigation resulted in a declaration by the Russian Deputy Minister of Finance that Belarusian solvents may serve as “a cloak for the export of oil products”.
However, there has been no single direct evidence of such violations yet.
Oil Agreements
During the period of the Customs Union’s creation, the two countries agreed that Belarus would be entitled to import Russian oil on a duty-free basis, but also undertook to transfer to the Russian budget the whole amount of export duties on “crude oil and certain categories of products produced from oil (“oil products”)” exported from its territory to third-party countries. Export duties from the extraction of its own oil (estimated 1.7m tonnes a year) go to the Belarusian budget.
The agreement aimed at settling the long-lasting oil wars of 2010 between the two countries. And until now it coped with this role. Russia delivered oil to Belarus without any duties’ requirement. Belarus, in compliance with its international obligations, transferred to the Russian budget $3.07bn of export duties on oil products exported to third-party countries in 2011. In January-April 2012 the amount was $1,472.6m. The business seemed to be mutually beneficial.
The solvents never were within the scope of the agreement before, since they are not classified as oil products. Accordingly, Belarus has not transferred to Russia export duties on solvents. At the same time, if Belarus actually exports oil products under the solvents’ label, it turns out to be guilty of evading its obligation to pay the export duty on them to Russia and threatening the fragile oil truce.
Economic and Political Interests
GDP growth of Belarus may decrease by 50% Read more
The amount of money at stake aggravates the situation. The alleged losses to the Russian budget from the illegal export of solvents amounted up to $1bn. According to Belarusian economic analyst Yaraslau Ramanchuk, if the same rules as those established for oil products apply to export of solvents, GDP growth of Belarus may decrease by 50%. But for these figures, the countries would probably avoid a revelation of these types of troubles to preserve the image of successful Belarus-Russia cooperation.
The political factors, however, can also play a negative role: the truth about this whole situation may never come to the surface. However widely announced the discussions of the solvents’ problem were by the prime ministers of the two countries, all we know is that the two states agreed to examine the case and to right a wrong. Though the top-level meetings took place more than two weeks ago, their findings have not been published.
There, of course, may be one more reason for this silence. If Russia’s allegations are justified, the question of who is guilty is going to arise. And the answers may be unpleasant. Belarus has two major solvents’ exporters, one of which is Triple, famous for its owner's very close relations with Alexander Lukashenka.
Could the solvents be illegally exported in such great amounts without participation of Triple and could the head of Triple act without authorization from higher-ups? Belarus analysts also claim it is a rhetorical question whether Belarus could implement the alleged scheme without Russian oil oligarchs’ participation.
Why Europe’s Policy Fails in Belarus
Siarhiej Martynau and Catherine Ashton in 2010. Photo: Council of the European Union.
On Friday, Belarusian Foreign Ministry declared that it would not prolong the residence permit for the Swedish ambassador Stefan Ericsson. It caused predictable sharp reaction of Sweden and the European Union.
It also put an end to speculations that participation of the Belarusian foreign minister Siarhiej Martynau in the Eastern Partnership foreign ministers meeting in Brussels last week meant that Minsk wished to improve relations with the European Union.
Belarus for many years played for the EU the role of a local bad guy who needed to be demonstratively punished for breaking rules of coexistence in democratic Europe. But in addition to the impulsive character of the Belarusian ruler, a number of objective factors diminish importance of the EU for Belarus.
Limits of Fear Before EU Sanctions
Martynau's visit to Brussels in July resembles a ritual, gesture in bargaining with Kremlin rather than an attempt at improving the relations. The positions of both sides seem adamant. A few weeks ago Lukashenka again stated once again that he waited for "concrete steps by the West, European Union. The ball is on their side." That means he was not going to do anything himself.
The most contentious issue is release of the political prisoners. Minsk is stubbornly keeping them caged, while for Brussels it is absolute precondition for any dialogue. Some believe, the situation can change if the EU threatens Minsk with new sanctions. Speaking to European Radio for Belarus on 19 July, the EU Commissioner Štefan Füle mentioned the possibility of such measures. Of course, the Belarusian government would like to avoid them.
But not at any price, as its survival recipe – strict control of society and Russian subsidies – does not include any Western components or democracy clusters. Martynau actually made it clear once again in Brussels. He called the meeting “useful” yet called for filling the “deficit of democracy inside the Eastern Partnership itself” and emphasised the need “to see human rights problems also in the EU member countries.”
Does the EU Matter to Minsk?
It is easy to overestimate the possible impact of the EU sanctions and the EU itself in Belarusian foreign policy. There appears to be a consensus among analysts that only Russian subsidies are crucial for the Belarusian leadership rather than any EU's threats or actions. According to Alyaksandr Klaskouski's remarks for the Radio of Liberty: "the EU cannot put any equal carrot on the balance scale. Because the EU has a lot of its own preoccupations besides Belarus. Therefore it is not going to struggle for Belarusian territory [with Russia] for geopolitical reaons.”
all forms of assistance from Moscow to Belarus on the average in 1995-2012 made annually up to 18-20% of Belarusian GDP Read more
To compete with Russia in providing economic assistance is merely impossible. Former presidential candidate Yaraslau Ramanchuk compared in his article for Naviny.by the Belarus-Russian economic relationship with US economic aid to Israel. He calculated that all forms of assistance from Moscow to Belarus on the average in 1995-2012 made annually up to 18-20% of Belarusian GDP. Experts estimate that Washington provides Israel annually with different forms of aid which amount to 8-15% of Israel's GDP.
The benefits are felt by ordinary Belarusians as well – they can travel, live and work in Russia. It is important when the well-paid jobs in Belarus are scarce and borders with the EU remain closed.
Yet Russia does not propose Belarus any kind of positive future prospects. Belarusian society much better likes the European model of development. But this positive opinion of Europe – alongside with very sceptical view of Russia – remain untapped in political sense.
Brussels expert of Carnegie Endowment Olga Shumylo-Tapiola in July noted at a meeting with Belarusian journalists: “The EU does not see itself an active player and is not ready to face harsh competition in eastern direction – I mean the countries between the EU and Russia. EU prefers today not to answer the question which interest it has in that region, as it can hardly answer that question at all.”
Füle admitted in his interview to Salidarnasc daily that during all these years of Belarus-EU relations Brussels had a “concrete strategic plan for Belarus” only once – before the 2010 presidential elections.
Limits of Sanctions and Engagement
Brussels can achieve as little through persuasion and engagement as through sanctions or pressure Read more
The Belarusian regime can easily initiate confrontations with the EU by abusing Western politicians or downgrading diplomatic relations. There are limits to the EU's opportunities to influence the Belarusian state. Brussels can achieve as little through persuasion nd engagement as through sanctions or pressure – which push Belarus eastwards.
Of course, theoretically, it could lure the Belarusian government with some new development prospects, profits and benefits. Unfortunately, the EU generally neither wants nor needs it. Some EU states such as Latvia and Lithuania – not the most influential ones – are interested in Belarus and would be happy to take that line, yet generally the Union and its most powerful members have other priorities.
However, the situation is not hopeless. Belarusians are cautious about Moscow and despite immense Russian economic support they do not demonstrate any longing to give up their own state and join Russian Federation. Thus, according to the public opinion surveys conducted by Belarusian independent pollster NISEPI, in June 2012 only 34% of respondents were willing to vote for unification of Belarus and Russia, while 44% were against it. These are still dangerous numbers for an independent country, but they demonstrate rising support for Belarusian statehood. After all, in August 2001 for unification were 57%, against – 21%.
Belarusian people apparently prefer pragmatic inter-state cooperation with Russia which anyway has a dominant role in Belarusian economy. The NISEPI's survey showed that 49% of respondents positively considered the Eurasian Union proposed by Putin, while 11% had negative attitude and 31% were indifferent.
the only feasible option for the EU remains cautious encouragement of political alternatives in Belarus through support of civil and political society Read more
In current circumstances the only feasible option for the EU remains cautious encouragement of political alternatives in Belarus through support of civil and political society. It should also maintain and improve contacts between Belarusians and their fellow Europeans along with reasonable interaction with government officials not directly implicated in human rights violations.
This year, the EU launched the European Dialogue on Modernisation with Belarus. However, as the Liberal Club director Yauheni Preiherman emphasised, the prospects of the dialogue looked uncertain as the most important questions remained without answers. These questions include the programme's aims and objectives, its participants, working regulation and implementation mechanism.
The discussion whether state officials will be invited to participate or the dialogue can be limited to technical experts, opposition and civil society – shows that this initiative is far from reality or absolutely unprepared.
The real question is only whether the EU is willing not only to punish but also to spend on building up a free and stable country on its eastern border.
