Although the ex-Soviet neighbors declared their intention in 1997 to build a Union State envisaging a common economic, customs and political space, the negotiations have been complicated by a host of issues, in particular a recent energy row.
"The problem is that we do not have market relations with Belarus. But the saddest thing is that integration processes are not moving forward, and intergovernmental agreements are not being implemented," German Gref told lawmakers during a 'government hour' in the lower house of Russia's parliament.
He said that to build a Union State, three elements were needed: the passing of a relevant constitutional act, the introduction of a single currency, which the countries had planned to finalize two years ago failed due unpreparedness on the part of Belarus, and the creation of a "common-regulation economic space".
The minister said Belarus has 59 restrictive measures in place against Russian producers which Moscow wants lifted.
Russia has traditionally been the closest ally of Belarus, whose leadership has become increasing isolated in the West over clampdowns on civic and political freedoms. The country's authoritarian ruler, Alexander Lukashenko, as well as many top officials, have been banned from entering the United States and European Union, and the EU has frozen Belarusian government assets.
Relations between Russian President Vladimir Putin and Lukashenko have deteriorated, and although Putin has pledged to continue Russia's energy subsidies to the Belarusian economy during 2007, to the tune of $5.8 billion, he said Monday that "starting from this year that support will decline considerably."
The oil standoff, which began when Russia hiked the natural gas price to Belarus and slapped an export duty on oil supplies to the country, causing Minsk to impose a retaliatory transit fee on Russia's Europe-bound crude exports at the start of the year, led to a three-day stoppage of crude supplies to Poland, Germany and other consumers. During the spat, Moscow accused Minsk of tapping oil as payment for transit services.
The dispute was resolved when Belarus lifted its transit duty, and Russia later cut its export duty from $180.7 to $53 per metric ton, effective from January 1, 2007, avoiding potentially crippling economic consequences for its neighbor, which has relied heavily on receipts from refining and re-exporting Russian oil.
Russia has complained of huge losses inflicted on its budget from crude supplies to its western neighbor. Belarus refines Russian oil and re-exports it to third countries, and has until now paid no taxes to the Russian budget in the process.
Bilateral talks are underway to agree on trade terms. Belarus currently charges higher tax rates for Russian goods than those levied by Moscow on products from Minsk.