MOSCOW, July 1 (Reuters) - Russia and Kazakhstan launched their customs union on Thursday in the first step towards creating of an ex-Soviet common market for 160 million people, brushing aside criticism from the West over protectionism.
The third ally Belarus, which chose to drop out of the Union’s launch due to the energy trade disputes with Moscow, was still welcome to join, Russian Prime Minister Vladimir Putin told a government session.
"I believe we need to start work in a trilateral format from the beginning, with active participation of our Belarussian partners," Putin said.
"The doors for such integration are open … Integration with neighbours is the historical choice for Russia."
Russia and Kazakhstan will from July 1 use a single customs code, although a transition period exists for a range of goods, meaning that the two nations have not completely unified their tariff legislation.
Putin took markets by surprise last year when he said that Russia was dropping its long-standing bid to join the World Trade Organisation (WTO) in favour of the customs union, saying the union promised immediate trade benefits for its members.
Russia has this year revived the WTO bid but the prospects of membership either unilaterally or as part of the union look unclear.
GAS ROW
Since the unveiling of the union plans, the relationship between Russia and Belarus has been marred by trade disputes culminating in last month’s "gas war", when Russia cut gas supplies to Belarus, which in turn halted transit to the EU.
Some analysts saw the standoff as a way to put pressure on Minsk, which had refused to join the union until Russia drops duty on oil supplied to Belarus, where it is processed at local refineries and re-exported at high profit margin.
The Belarus parliament quietly ratified the union’s customs code as soon as the gas spat was over and Russian gas firm Gazprom agreed to Belarus gas transit terms.
"The creation of the customs union is a complicated process linked to a labour-consuming and diligent work on hundreds of positions … In the European Union similar processes took many years," Foreign Ministry spokesman Andrei Nesterenko said.
The presidents of the three countries will meet on July 5 to decide whether Russia and Kazakhstan should proceed without Belarus, which borders the European Union, Russia’s largest trade partner, already handling much of Russian trade flows.
Russia has used the economic crisis — which hit it harder than BRIC emerging market peers Brazil, India and China — as an excuse to introduce protectionist measures.
Russia was singled out as on of the worst protectionist offenders in the G20 group of the world’s leading economies, and EU officials have said that the Customs Union is a way to raise more trade barriers.
Putin has said the cabinet is constantly thinking about new import duties on finished goods to force foreign firms to set up production in Russia and protect fledgling domestic industries.
