Internal
The Eurasian Economic Union
Thilo Bodenstein
Central European University
Nador u. 9
H-1051 Budapest
Abstract
The Eurasian Economic Union (EAEU) was founded on January 1, 2010. Prior to this, several
multilateral FTAs had been concluded to create a common economic space in among Eurasia’s
post-Soviet states. The EAEU has ambitious targets. Going beyond a FTA and even beyond a
costumes union it envisages the emergence of a true geo-economic and geo-political bloc similar
to the European, eventually even comprising a monetary union. This article describes the making
of the EAEU during the past 15 years and analyses the preferences of governments and economic actors that shaped its outcomes. Moreover, the article assess the current outcomes of the
EAEU against its initial ambitions and discusses the obstacles to becoming a full-fledge regional
integration bloc.
1. Introduction
Regional economic integration in the post-Soviet space has started soon after the collapse of the
Soviet Union. Once a highly integrated economic space, the depth and duration of the transition
crises reduced economic interaction between the newly independent post-Soviet states. Attempts
to re-integrate what was now called Eurasia were the creation of the Commonwealth of Inde-
Internal
pendent States, the Free Trade Area of the Commonwealth of Independent States, the Eurasian
Economic Community, the Eurasian Customs Union and the Single Economic Space and finally
the Eurasian Economic Union, to name the most important initiatives. Eurasian regional integration, however, has been complex and characterized by lack of implementation and failure. Even
its most ambitious project — the Eurasian Economic Union — had a difficult start and depends
on the political will of the presidents of its member states.
The contribution describes the main stations of Eurasian economic integration. It shows how the
failure of the Commonwealth of Independent States led to new efforts to launch a new project of
deeper regional integration which finally led to the Eurasian Economic Community. Its main
success was the founding of the Eurasian Customs Union and the Single Economic Space, which
for the first time created the conditions of common market for goods, capital, services and labour. As of 2015 both organizations were merged into the Eurasian Economic Union comprising
five countries. Its institutions are modeled according the European Union, but without their supranational powers.
The second part of the contribution discusses the determinants of regional integration in Eurasia.
It argues that the logic of liberal integration theories can only be observed in the case of Russia’s
accession to the World Trade Organization, as the negotiations were influenced by interest
groups. Societal support and interest groups politics, however, was largely absent in the other
member states of the Eurasian Economic Union. By contrast, geopolitical considerations of the
Russian government and security concerns of the other EAEU members were an important driving factor of regional integration. Lacking a straightforward economic rationale, the outcome of
the Eurasian Customs Union and of the Eurasian Economic Union is trade diversion rather than
trade creation. Ongoing commitment problems are further hampering the integration process.
Internal
2. Economic integration in Eurasia
After the Collapse of the Soviet Union the first attempt to maintain economic and political ties
between the new independent post-Soviet states was the creation of the Commonwealth of Independent States (CIS). It was founded in December 1991 in the Alma Ata Declaration and initially
comprised all post-Soviet republics except of the Baltic states. The initial purpose of CIS was to
maintain the common military structure and to preserving the economic space including infrastructures for electricity, transport and communications that had evolved during the Soviet era
and that was threatened to disintegrate in the wake of the breakup of the Soviet Union. The CIS
envisaged a common Eurasian market similar to the common market of the EU including free
movement of goods, services, capital and labour and the use of a common currency.
In September 1993 the nine member states of the CIS signed a treaty on the creation of an economic union. The treaty set out a plan for progressive economic integration starting with multilateral free trade association, moving to a customs union and eventually comprising free movement of goods, services, labour and capital and even finally leading to a monetary union. Georgia
and Turkmenistan joined the treaty, while Ukraine - favoring integration with the West - opted
for the status of an associate member. A first tangible step of the intention to form a closer union
was the agreement on a Free Trade Zone in April 1994. Russia, however, failed to ratify the treaty and so attempts of develop the CIS into a multipurpose regional organization stopped.The fate
of the CIS has been become a loose inter-governmental organization, where ‚presidents could
meet‘.
But it managed to evolve. Russia, having decided to go for a hub approach by signing bilateral
agreements with the post-Soviet states after the failure of the Free Trade Zone, went back to prioritizing a bilateral approach in 2008 when the EU started to launch association agreements and
deep and comprehensive free-trade agreements with Soviet successor states. In October 2011
eight CIS member states signed in St.Petersburg the CIS Free Trade Agreement (CIS FTA) a relaunching the failed 1994 Free Trade Agreement (Kembayev 2016). By 2014 the CIS FTA was
ratified by all member states. Azerbaijan did not join. The CIS FTA replaces over 100 bi- and
Internal
multilateral trade agreements between the CIS member states (Cooper 2013). In the meantime,
Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan had founded the Central Asian Cooperation
Organization (CACO) in 2002, which goes back to Central Asian Union (CAU) founded in 1994
and renamed in Central Asian Economic Union (CAEU) in 1998 (Bohr 2004). In January 2006
CACO merged into the Eurasian Economic Community.
In 1994 the President of Kazakhstan, Nursultan Nazerbaev, gave a speech at Chatham House in
London and later that year at Moscow State University proposing the creation of a Eurasian Union of States. The meeting of CIS heads of States in October 1994 reluctantly still put the issue
on the agenda but finally rejected the idea. However, the first steps toward a Eurasian Economic
Community started already in 1995 with an agreement between Belarus, Kazakhstan and Russia
to move towards a Customs Union. This declaration of intent was joined by Kyrgyzstan in 1995
and Tajikistan in 1997, but the agreement remained ineffective due to economic crises and different economic policies. In 1996 Belarus and Russia formed a Union State of Russia and Belarus (USRB), which became effective in January 2000. Its aim was not only economic integration
including a common currency and joint militarize forces, but eventually the unification of both
countries. On the other hand, CIS countries with more western orientation started to form their
own grouping. In October 1997 GUAM (Georgia, Ukraine, Azerbaijan, Moldova) was created
and evolved briefly into GUUAM, when Uzbekistan joined the group between 1999 and 2005.
An important step forward towards integration happened in October 2000. Belarus, Kazakhstan,
Kyrgyzstan, Russia and Tajikistan agreed on the formation of the Eurasian Economic Community (EurAsEC1). This new organization became effective as of May 2001, and a year later Moldova and Ukraine joined as observer states, Armenia in 2003. Between 2006 and 2008 Uzbekistan
also participated in EurAsEC. The organization was entitled to conclude international treaties
and was given decision-making structures that reminded of the European Union. The Interstate
Council, consisting of the heads of states, was the supreme decision-making body. Its executive
body became the Integration Committee chaired on a rotating basis by each country for a year
1
The acronym stands for Eurasian Economic Community.
Internal
lead by a General Secretary appointed for three years. The Secretariat was located in Moscow
with some unites in Almaty. EurAsEC opted for weighted voting with two-thirds majority. Voting weights were given according to countries’ budget shares. This amounted to 40 votes to Russia, 20 votes each to Belarus and Kazakhstan and 10 votes each to Kyrgyzstan and Tajikistan. In
addition to this EurAsEC had an Inter-Parliamentary Assembly based in St.Petersburg, to which
Russia sent 28 delegates, Belarus and Kazakhstan 14 delegates each and Kyrgyzstan and Tajikistan 7 delegates each. The Court of EurAsEC is located in Minsk.
The EurAsEC had a far-reaching agenda of coordinating member states’ tax and budget policies
and economic management, agriculture, industry, transport, border control, social issues, migration. Goal of free movement of capital was declared and moving towards common financial
market, cumulating in a common currency.2 During its short existence the Inter-Parliamentary
Assembly tried to harmonize national laws and elaborated more than 300 legislative acts for consideration of national law makers (Kembayev 2016).
The EurAsEC decisively contributed to integration by the launch of the major projects – the
(trilateral) Eurasian Customs Union (ECU) and the Single Economic Space (SES). The first
agreements were signed in October 2007 and the ECU became effective in January 2010 including Belarus, Kazakhstan and Russia. Armenia and Kyrgyzstan joined the ECU in 2015. A common Customs Code entered into force in January 2010 and border controls between Russia and
Kazakhstan were removed in July 2011 and between Russia and Belarus a year later.
The decision making bodies of the ECU partially overlapped with EurAsEC. The Court of EurAsEC and the Inter-Parliamentary Assembly were also in charge of issues related to the ECU. It
had, however, its own Commission located in Moscow. Voting procedures in the ECU Commission were weighted with 57 percent of votes pertaining to Russia, and Kazakhstan and Belarus
21.5% each. The partition of revenues from custom duties was decided according to trade vol2
Decision of Interstate Council of EurAsEC, 9 Feb 2004.
Internal
umes, which means that 87.7 percent go to Russia, 7.33 percent to Kazakhstan and 4.7 percent to
Belarus.
The second pillar of economic integration was the creation of the SES. A first attempt was made
based on a decision by the Interstate Council of Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan in February 1999. The agreement was signed in September 2003 in Astana by Belarus, Kazakhstan, Russia and Ukraine, but Ukraine’s Orange Revolution put an end to the project. The
SES gained new momentum with the action plan adopted by the Interstate Council of EurAsEC
in December 2009. The SES started in January 2012 and intended to implement free movement
of capital, harmonization of economic policy including the adoption of formal criteria for macroeconomic policy and harmonization of labour, finance, health and safety standards in order to
create a level playing field.
In November 2011 the Interstate Council of EurAsEC agreed to form the Eurasian Economic
Union (EAEU), to merge it with the ECU and SES and to transfer the work of the Commission
of the ECU to the new Eurasian Economic Commission (EAEC) located in Moscow. The EAEU
became effective on 1 January 2015 and the EurAsEC formally ceased to exist. The EAEU included first Belarus, Kazakhstan and Russia and was soon joined by Armenia and Kyrgyzstan.
The highest decision making body of the EAEU is the Supreme Eurasian Economic Council
(SEAEC), which consists of the presidents of the five members states.3 It meets at least once per
year and is in charge of strategic decisions regarding the development of the EAEU. The Eurasian Intergovernmental Council (EAIC) includes the heads of governments. It meets twice a year
and decides on issues that could not be resolved by the EAEC by consensus decision making.
The EAEC is the main executive body where day-to-day work takes place. Its decisions are binding and directly applicable. The EAEC consists of the Board of the Commission and the Council
of the Commission, which was called Collegium during EurAsEC. The Board is composed of a
3
http://www.eurasiancommission.org/en/Documents/broshura26_ENGL_2014.pdf, accessed on 6 February 2017.
Internal
chairperson and representatives from each member state appointed for four years. It takes decisions by two-thirds majority and makes proposals to the Council, executes decisions and monitors implementation of EAEU agreements. The Council oversees the Board and can revoke its
decisions at the initiative of any Council member. The EAEC is thus not a supranational body.
The Court of the EurAsEC continued as was renamed as Court of the EAEU. The SEAEC appoints two judges from each member state for a term of nine years. There is an important difference to the European Court of Justice. Eurasian integration law is not legally binding for national
law and is does not create new supranational law. It follows legal positivism theory according to
which the court can only apply existing law (Kembayev 2016). Its legal rulings are thus not a
source of further integration of the EAEU and it is not a lawmaking body. The InterParliamentary Assembly of the EurAsEC, however, has ceased to exist in the new framework of
the EAEU. The presidents of Belarus and Kazakhstan were fiercely opposed against its continuation, as they feared it could develop - like the European Parliament - into a more independent
body leading to supranational integration and thus undermining national sovereignty (Kembayev
2016).
3. Preferences and interests
The EAEU was created in a rather short time period as compared to the making of the EU in its
current form. On the other hand, the EU expanded from its six founding member states to a club
of 28 states, while only five of the nine founding members of the CIS are part of the EAEU. To
explain regional integration outcomes scholarly literature employs liberal intergovernmentalism,
neofunctionalism, multi-level governance and political economy approaches (Börzel 2016). This
section argues that Eurasian regional integration can be explained as a result of inter-state bargaining characterized by the absence of societal influences. The interests and stakes of the participating countries vary greatly. Russia clearly dominates the EAEU with its market size of 143
million citizens and global political and military capacities, while Armenia with its 3 million
citizens and relative isolation must follow different agendas.
Internal
The collapse of the Soviet Union disrupted the economic ties between its former republics. The
economy of the Soviet Union was densely integrated with a large number of monopoly industries. The creation of the CIS was an attempt to maintain the economic links, but as a matter of
fact the CIS main function turned out to be a framework for orderly economic divorce. In principle, preferential trade agreements should be trade creating, which requires complementarity of
the economies involved and a substantial amount of mutual trade. From a political economy perspective demand for Eurasian integration comes from both governments and societal actors to
achieve economic benefits of cooperation. In the case of the post-Soviet countries, economic
collapse and disintegration are a starting point for demands of regional re-integration.
After the breakup of the Soviet Union the EAEU economies collapsed as well. Russia and Armenia hit the bottom in 1992 with GDP growth of –12 percent and –42 percent respectively, Kazakhstan (–13 percent), Kyrgyzstan (–20 percent) and Belarus in 1994 (–12 percent). Starting
from 2000 all countries experienced persistent high growth rates again: From 2000 until 2015
Russia grew on average by 4 percent, Kazakhstan by 7 percent, Kyrgyzstan by 4.5 percent, Armenia by 7 percent and Belarus by 5 percent. These figures show the disruptive event of the Soviet collapse, but also the long-term recovery of the economies of the EAEU countries. Trade
patterns of the EAEU countries reflect the process disintegration (cf. Myant and Dahokoupil,
2008). Export specialization of Kazakhstan and Russia is highly similar and centered on commodities export. In addition, the main export markets of the EAEU countries are now outside of
the region. Table 1 depicts the export structures of the five founding countries of the EAEU as of
2015.
Table 1 about here
The imbalances between the member countries of the EAEU in terms of total GDP are substantial. Russia’s GDP is more than five times bigger than all other countries combined, seven times
bigger than the second largest economy (Kazakhstan) and 190 times bigger than the smallest
economy (Kyrgyzstan). Although exports have been growing since 2000 — as can be seen from
Internal
the export values index — the export share of total GDP is only around 30 percent for four
EAEU countries, expect Belarus, which derives 60 of its GDP from export. Fuel exports account
for over 60 percent of merchandised export for the two largest economies, Russia and Kazakhstan, while the share of foot export of both countries is only around 4 percent. This already
shows the structural similarity of their economies. Also, the share of manufacturing exports exceeds 40 percent only in case of Armenia and of Kyrgyzstan, and for the two biggest economies
the share is 20 percent. At the same time, high-technology export remain comparatively low for
all EAEU member states. Finally, Armenia and Kyrgyzstan have high shares of personal remittance due to labour migrants who mainly work in Russia.
Mutual trade between EAEU member states trade is also rather small. Table 2 shows the top five
export destinations.
Table 2 about here
The two largest EAEU members Russia and Kazakhstan are not their most important mutual
trading partners. Russia’s exports to Kazakhstan are only a quarter of its exports to the Netherlands. At the same time, Russia buys only slightly more than a third of what Italy buys from Kazakhstan. Kazakhstan’s exports to Belarus – its second most important trading partner within the
EAEU – is only a fraction of exports to France. However, Russia is the most important export
markets of Belarus and Armenia with Kazakhstan playing a minor role. Only Kyrgyzstan, the
tiniest of the EAEU economies, seems to be stronger economically integrated with other EAEU
countries. Thus, the case for a Eurasian PTA or even a common market at the beginning of the
EAEU is puzzling. The general picture is that intraregional trade has significantly fallen over the
past 20 years (Gurova/Yefremova 2010: 110).
According to liberal theories of international cooperation societal and interest groups may have
an important influence on the formation of regional integration (Börzel 2016). In the case of the
Internal
EAEU there are two factors that limit societal impact on decision making. First, the EAEU
founding states are semi-authoritarian or authoritarian regimes with limited and selective influence of interest groups to political decision makers. Second, the preparation phase to the EAEU
was comparatively short and driven largely driven by presidential administrations. The unfolding
of interest groups in the policy making process was limit by this short time period; scholarly literature barely mentions lobby groups (ie Kembayev 2016).
In Russia’s case, however, the distribution of foreign trade integration preferences of interests
groups is visible during Russia’s long negotiations over WTO membership. The negotiations
lasted longer than expected because Russia wanted the ECU to access WTO as a group, which
was unprecedented and resisted by other WTO member states (O’Neal 2014, Kembayev 2016).
But interest groups resistance to WTO membership was also notable. Energy and commodities
being the main exports of Russia and not regulated by WTO law, the main sectors opposing
WTO membership were livestock and dairy farms and producers of agricultural machinery. Rossagromash — the machinery manufacturers association — took decisive stance against WTO
membership, as it belongs to the import competing sector. Further resistance came from Russian
banks being wary of foreign competition. Russian industrial products were commonly seen as
not competitive on the world market and it was not surprise that the Russian Chamber of Commerce and Industry (RSPP) initially opposed WTO accession (O’Neal 2014).
By contrast, support for Russia’s accession to the WTO came from steel exporters. The oligarch
and owner of the steel company Severstal, Alexey Mordashov, was heading RSPP’s WTO committed and was strongly committed to WTO membership. During the negotiations RSPP changed
its strategy and started arguing in favour of WTO accession as a means to modernize Russia’s
industry. Another supporter of WTO accession was the Russian Grain Union. More importantly,
however, the Russian automotive sector signaled its qualified support. Russia’s automotive industry is hardly competitive with foreign producers and operates behind a wall of high tariffs.
The final WTO agreement allowed Russia to phase out its tariffs on imported cars over several
years.
Internal
The result of the WTO agreement is one reason why Russian interest groups were hardly active
regarding the EAEU. Russia’s external tariff has de facto become the external tariff of the ECU
and later of the EAEU. This also implied that other EAEU members had to raise their tariffs.
Thus, the EAEU was not a thread to Russia’s import competing industry. The countries of the
CIS are an important export market for Russian manufacturing exports, the share of which has
been steadily rising (Krickovic 2014). Following the creation of the ECU Russian car exports to
Belarus and Kazakhstan have also strongly increased. Thus, Eurasian economic integration offers economic opportunities to Russian exporters.
The case if slightly different for Kazakhstan. Interest groups policy is difficult to identify (Kassenova 2013) in a political system that has been characterized by authoritarianism and structured
by clan politics (Collins 2004). Economic preferences need to be inferred from presidential
speeches and government reports. President Nazarbaev has advocated Eurasian integration already in 1992 and since then has been supportive of the integration project. The initial impulse to
advocate Eurasian integration was most likely connected to Kazakhstan’s multi-cultural heritage
and a large population of Russian-speaking citizens. Propagating integration may have eased
potential ethnic tensions in the first years of the new nation (Sultanov 2015).
This alone would be not a sufficient explanation of Kazakhstan’s integration into the EAEU.
Kazakhstan needs Russia as export market, but also as transit country to its gas and oil sales to
the West (Ericson 2012). Kazakhstan’s western gas fields are still connected to Europe through
the former pipeline systems that transits Russia. Although China has offered access to its pipeline system, demand from Europe is more important. The EU had proposed to build the Nabucco
pipeline that would circumvent Russia, but in 2013 the project was stopped. This leaves the
country with the existing pipelines through Russia and the new Russian pipeline project Prikaspiyskiy (Ericson 2012). Further below we will see how Russia tended to use gas and pipeline
diplomacy to nudge CIS countries towards Eurasian integration.
Internal
Regarding exports of goods and services the high speed with which the EAEU was implemented
did not leave time for thorough assessment (Kassenova 2013). One of the few studies by the
World Bank predicted three different scenarios based on the experience with the ECU (Kassenova 2013). The scenarios predicted a loss or real income of 0.2-0.3 percent and some effects of
trade diversion. In how far these scenarios prompted business leaders to lobby for more protection is difficult to say. At the tenth Kazakhstan-Russia Interregional Cooperation Forum in Yekaterinburg, 11 November 2013, Nazarbayev voiced his concern over decline in exports and rise in
imports and mentioned dissatisfaction among the business community. He complained about
unequal market access for Kazakhstani exporters to Russia and Belarus due to existing non-tariff
and technical barriers and certification, licensing and quota measures (Sultanov 2015). Indeed,
the first experiences within the ECU were sobering (see further below). Finally, Kazakhstan’s
support for Eurasian economic integration was only part of a more comprehensive strategy.
While negotiating over the EAEU Kazakhstan was simultaneously negotiating its WTO membership. In trying to do so it sought Western support. According to Wikileaks, the ambassador of
Kazakhstan met with the US ambassador in February 2009 and promised to stall the ECU formation process if the US would send a clear signal that Kazakhstan is welcome to the WTO
(Kassenova 2013: 148).
Belarus has had complex political and economic relationships with Russia since its independence. It is one of the founding states of the CIS and even created a joint Union State with Russia.
President Alexander Lukashenka has transformed the country into a highly centralized state: Up
to 75 percent of the economy is still under states control and directors of the major state-owned
companies are appointed by the president (Frear 2013). The state is characterized by patronclient relations where the government is able to distribute economic favours in exchange for loyalty. One such example is the system of ‘specialised importers’ which grants import monopolies
for lucrative products such as alcohol or tobacco (Frear 2013). Open interest groups politics is
thus largely absent.
For all its integration zest, the country has remained reluctant to overtly embrace Eurasian economic integration. Russia is the main export markets for products from Belarus. One key ra-
Internal
tionale of Belarus is to maintain subsidized energy commodity imports from Russia. Belarus
refines crude oil and sells export petroleum products to Western customers, which amounts to 30
percent of the state budget and the majority of its exports to the EU. The implicit subsidies by
Russia are estimated to 16 percent of Belarus’ GDP.
In negotiating over Eurasian integration Belarus is trying to maintain or even improve the conditions of energy imports from Russia and preserve its economic model, while at the same time
keeping a door open to its Western economic partners. President Lukashenka sees Eurasian integration as a step towards some sort of pan-Eurasian integration comprising also the EU, for
which he coined the term ‘integration by integration’ in speech given at the 2013 meeting with
CIS leaders (Korosteleva 2015). This balancing act earned Belarus increased pressure from Russia, but also gave the government some leverage over its neighbour. When Belarus started talks
with the EU in 2000 over the Partnership and Cooperation agreement, Russia refused to increase
the amount of subsidized gas exports to Belarus (Korosteleva 2015). In 2012 flights between
Minsk and Moscow were suspended in a dispute over airline routes. Belarus delayed the implementation of the ECU Customs Code to secure a better deal regarding energy subsidies. However, the economic downturn in 2011 forced Belarus to accept a loan from the Eurasian Development Bank crisis fund with the conditionality attached of privatizing state-run businesses. President Lukashenka managed to avoid large scale privatization, but in 2011 the country privatized
Beltransgaz which was taken over by Russia’s Gazprom.
Belarus managed to maintain subsidized energy imports from Russia, but had to give in by joining the ECU in 2010. According to Fear (2013) the benefits were mixed. The ECU’s external
tariff was mainly based on Russia’s tariffs, which lead to an increase of tariffs on 18.6 percent of
Belarus’ goods and to a decrease on only 6.7 of goods. On the other hand, Belarus could maintain its system of specialized importers and negotiate together with Kazakhstan over 100 exemptions to the common external tariff. What was more challenging was Russia’s membership of
WTO in 2012, as the country had to open its markets for import from other WTO members increasing competition for it import-competing industries, but also for its exporters to the Russian
market.
Internal
Armenia joined the EAEU soon after its inception in 2015. Armenia’s membership in the integration scheme can be justified based on its economic dependency on Russia. The country is
Armenia’s most important trading partner and its labour markets are highly attractive to Armenian migrants. Personal remittances amounted to 14 percent of Armenia’s GDP in 2015. However,
Armenia was initially reluctant to join plans for deeper Eurasian integration. Armenia signed the
Partnership and Cooperation Agreement with the EU in 1996 and became part of the European
Neighbourhood Policy in 2004. The government regarded close cooperation with the EU as the
preferred way to modernize the economy. The Armenian Security Strategy mentioned in 2007
the priority to follow the European model of development (Delcour 2015). In 2013 the country
was one of the candidates to sign the Deep and Comprehensive Free Trade Area agreement with
the EU, which would have integrated into the EU’s economic space. Armenia succeeded quite
well in adopting European standards.
At the same time, Armenia depends on Russia in its external security. The protracted conflict
with Azerbaijan over the territory of Nagorno-Karabakh and worsening relations to Turkey
forced Armenia to join the Russian led Collective Security Treaty Organization (CSTO) founded
in 1992. In September 2013, however, Armenia’s President Serzh Sargsyan decided much to the
surprise of the country’s elite not to follow European integration anymore and instead announced
to join Russia’s plans for a Eurasian Economic Union arguing that his country needs to be consistent in its foreign policy and cannot simultaneously pursue close cooperation with the EU
while being member of the CSTO. According to Delcour (2015) the circumstances that led to
this decision seem to have more to do with security than economic concerns. Prior to the decision Russia reactivated the ‘Compatriots Living Abroad’ program which sees all former Soviet
citizens as ‘compatriots’ and accelerated the country’s brain drain. Russia started selling arms to
Azerbaijan in spring 2013 and increased its gas price to Armenia by 50 percent in July 2013.
Finally, Hungary’s Prime Minister Viktor Orban decided to extradite the Azerbaijani officer
Ramil Safarov to Azerbaijan, where he was pardoned by the President. Safarov was convicted in
Hungary of murder of an Armenian officer during a joint military exercise in Hungary. This extradition from a EU country has led the Armenia leadership to the conclusion that the EU will
Internal
not be able to provide security and sought closer cooperation to Russia. The economic case for
joining the EAEU was ambiguous: Armenia’s average customs were 2.4 percent, approximately
3 times lower than average customs of the ECU (Delcour 2015).
Finally, Kyrgyzstan — the smallest member of EAEU in terms of economic size — is founding
member of EAEU, but joined the organization a few months later. There are strong imperatives
for the country to integrate with EAEU, the most important being remittances from its labour
migrants to Russia (Tarr 2016). Remittances amounted to 25 percent of GDP in 2015, and were
still at 30 percent of GDP in 2013. Workers from Kyrgyzstan previously did not have legal residence rights, which only changed with the common labour market of the EAEU. Also, similar to
Armenia the country is member of the CSTO and hosts a Russian airbase in Dordoi. In April
2010 Russia supported the dismissal of the incumbent president Kumanbek Bakiyev (Saivetz
2012). But for Kyrgyzstan, the case of EAEU was not as straightforward as it seems, as it also
faced an economic trade-off. Its tariffs to imports were lower than the rates of the EAEU and half
of Kyrgzstan’s imports come from China (Tarr 2016). In order to ease the country’s integration
Russia promised 1.3 billion USD in transition aid and investments by Gazprom (Tarr 2016).
The reasons and motives for post-Soviet countries to join the ECU and SES and the successor
organization EAEU are quite diverse. The economic case is not straightforward. For some countries alternative options such as closer cooperation with the EU, access to the WTO or even closer economic integration with China would also have made sense. Open lobbying of business
groups in favour of EAEU is hardly observed, mainly because the political systems give no access to structured lobbying, but there were also arguments against rapid integration. Tajikistan is
an example. The country has been active in the formation of the CIS and was a founding member
of the EurAsEC. Yet it did not join the ECU or CES and it has still not signaled its resolve to
become member of the EAEU. There are arguments to be made in favour of EAEU, because
Tajikistan heavily depends on remittances from Russia, which mounted to 43 percent of Tajikistan’s GDP in 2013. The share went down to 29 percent in 2015 mainly because of Russia’s economic crisis. This drop has increased the potential gains for Tajikistan in participating in China’s
Internal
One Belt, One Road Initiative. There are thus alternatives to EAEU. In explaining the rapid formation of the EAEU geopolitical and geoeconomic considerations come into play.
Geoeconomy as a concept has disappeared in the scholarly discourse on trade integration during
the past decades. A keyword search of geoeconomics in the Social Science Citation Index yields
273 entries. The first two entries appeared in 2001, in 2007 there were already nine entries and in
2016 there were already 56 pieces related to geoeconomics. The concept seems to be on the rise.
In explaining the emergence of the EAEU the concept becomes increasingly popular. Sergei
Glazyev, economic advisor to President Putin, stresses in his contribution on the Eurasian Union
Russia’s Eurasian character as a ‘distinct, ideological, political, historical and cultural concept’
(Glazyev 2015: 84). He is not alone in this. President Putin in his seminal newspaper contribution also referred to the Eurasian Union as ‘a powerful supranational association capable of becoming one of the poles of the modern world…’ (Glazyev 2015: 88). The question remains,
however, what the analytical content of the concept should be. In a geoeconomic perspective
state agents control and use economic power to follow a mercantilist agenda. It is ‘the use of
statecraft for economic ends; a focus on relative economic gain and power; a concern with gaining control of resources; the enmeshing of state and business sectors; and the primacy of economic over other forms of security” (Young, 2011, cited in Mattlin/Wigell 2015: 128). Saivetz
(2012) argues that geopolitical and economic goals cannot be separated in Russia’s policy towards its neighbours.
In this perspective the driving force of Eurasian integration has been Russia’s state officials. The
concept of geoeconomics assumes that integration process are driven by political elites, not necessarily by societal preferences or organised interest groups. In the case of Russia both factors
are rarely mentioned and barely observable. According to Krickovic (2014) public support in
Russia for Eurasian integration is low and nationalists even reject it. The already mentioned
newspaper article by President Putin started a fresh attempt to rally the member states of the CIS
around the Eurasian integration project. According to Tsygankov (2011) Russia seeks to bind its
neighbours into Russian dominated institutions to preserve its role as a ‘regional great power’.
The dominant actors for regional integration is the political leadership and the elite (Krickovic
Internal
2014). Elite perception center around the perception Russia’s decreased international influence
and the need to restore its role as a ‘great power’ (Trenin 2011, Mankoff 2009). Glazyev (2015:
85), for instance, reflects this thinking by arguing that Russia has power of attraction in Eurasia
because ‘Russia is not just a country, but a civilization in its own right. Only China, India and
Japan can claim the same.’
Apart from great power instincts, the changing international environment affects Russia’s regional options. One concern of Russia’s political elites was EU expansion into the post-Soviet
region by its European neighbourhood policy, which was perceived of creating a ‘cordon sanitaire’ around Russia further isolating it (Krickovic 2014). At the same time, the decreasing global
and economic influence of the West was seen by political elites as a call to engage more in regional integration to provide public goods that the West would not be able to provide anymore.
A final motivation is the hope that Eurasian integration will help modernize Russia’s economy
by becoming less dependent on Western markets and raw material exports (Krickovic/Bratersky
2016).
Russia’s negotiation style was not without coercive elements. President Putin’s advisor Glazyev
(2015: 94) states that ‘Unlike the EU or the US empire, which coerce other countries by force of
arms and the power of their reserve currencies, Eurasian integration is a voluntary association of
peoples […]’, but actually Russia has frequently used energy subsidies to increase support for
integration. The use of energy prices and purchase of state assets in the case of Belarus has been
mentioned above. Similar negotiation tactics were employed vis-à-vis Ukraine. Russia put pressure on Ukraine to merge its gas company Naftohaz with Gazprom (Saivetz 2012) and put it under pressure when it intended to sign the Deep and Comprehensive Free Trade Agreement with
the EU (Krickovic/Bratersky 2016).
At the same time, the project of the EAEU cannot be fully separated from security concerns. The
founding members of the EAEU are also members of the Collective Security Treaty Organizatio
(CSTO) which was founded in 1992. Jackson (2014) argues that CSTO’s main purpose is regime
Internal
security, non-interference and state sovereignity. CSTO has identified ‘separatism’ as a common
threat, as well as ‘information warfare’, ‘mass psychological brainwashing’ under which falls
dissemination of information that is ‘harmful to the spiritual, moral and cultural spheres of other
states’ (Jackson 2014: 193). Armenia’s membership in the CSTO was a key motivation to join
the EAEU. In a similar vein, Kyrgyzstan’s final decision to become member of the EAEU can be
traced back to its growing security concerns over its citizens joining the ranks of ISIS (Krickovic/Bratersky 2016).
A final indicator that the EAEU may go beyond purely economic integration are statements by
Kazkhstan’s president Nazarbayev who warned against political integration of the EAEU as a
threat to its county’s independence (Sultanov 2015). In a similar vein, president Lukashenka is
opposed against attempts to create additional supranational structures that would undermine political independence and sovereignty of Belarus (Sultanov 2015). Geopolitical and economic
consideration are thus closely intertwined.
4. Conclusion: outcomes and problems
The EAEU is expected — as its predecessor EurAsEC — to increase trade and investment
among its member states and help modernize their economies. The organization is still young
and it is too early to thoroughly assess its effects. Tarr (2016), however, estimates that the EAEU
is has trade diverting rather than trade creating effects. Although Russia’s WTO membership
phases in lower bound tariffs which are also the external tariffs of the EAEU, the other member
states had almost to double their external tariffs when entering the EAEU. Armenia’s unweighted
average tariff rate was 3.5 percent, Kyrgyzstan’s 4.6 percent and Kazakhstan’s 6.7 percent. The
common unweighted tariff rate of EAEU is expected to be 7.9 percent in 2020 (Tarr 2016). In
the case of the ECU this led to a substantial increase of lower-quality imports from Russia and
partially displaced imports from other countries. From a Russian perspective this is an opportunity to expand its export markets.
Internal
A more serious problem are existing non-tariff barriers in form of sanitary and phytosanitary
regulations and technical barriers to trade on goods reducing access to Russian market. Russia’s
GOST system effectively serves as the regulatory framework of the EAEU with approximately
20’000 applicable standards. GOST is the Soviet system of industrial standards still applied in
Russia (Tarr 2016). The Soviet system of industrial standards was highly centralized and not
only covered product standards, but also production standards. Today GOST poses problems to
exporters to Russia, as the way the goods are produced also has to comply with the GOST regulations increasing production costs. For instance, when producers want to change production
processes due to market changes or technical innovation these have to be negotiated with the
regulators. Mutual recognition of standards does not happen and the EU solution of ‘negative
regulation’ – were a country’s regulations have to be accepted by all other EU countries – is unlikely to emerge in the EAEU. By contrast, trade facilitation has improved since the inception of
the ECU (Tarr 2016). For instance, the days it takes to export from Armenia has fallen from 20
days in 2009 to 16 days in 2015, from 16 to 15 days from Belarus, from 84 to 79 days from Kazakhstan and form 24 to 22 days from Russia. The numbers are similar for time it takes to import.
Commitment problems, however, are still considerable and threaten the long-term success of the
EAEU. The member states of the EAEU have been involved in mutual trade conflicts since the
creation of the ECU and often non-tariff barriers were used for this purpose. For example, when
the war in Ukraine escalated Russia unilaterally imposed counter-sanctions on Western products.
The other two members of the ECU, however, did not follow Russia’s counter-sanctions undermining the sense of a customs union. Russia then accused Belarus of transferring Western goods
from Belarus to Kazakhstan and selling them on the way on the Russian market thus circumventing the counter-sanction. As a consequence, Russia banned goods from Belarus meat and dairy
products on grounds of health concerns. Belarus retaliated by customs checks on Russian vehicles entering Belarus. The latest row between the countries happened in February 2017 when
Russia reintroduced border controls with Belarus following a partial liberalization of Belarus’
visa regime. Commitment to EAEU rules is also questionable in the relationship between Russia
and Kazakhstan. In March 2015 Kazakhstan stopped Russian imports of fuel and gas because of
Internal
Russian trade surpluses (Tarr 2016). In March of the same year Kazakhstan put a ban on meat
products from Russia arguing they violated safety standards. The move was countered by Russian counter-restrictions.
Whether the EAEU will function against this background remains to be seen. EAEU regional
integration does barely follow liberal theories of integration and is more akin to rationalist accounts of geopolitics. The project mainly reflects to political will of the presidents of the founding states and lacks widespread public and interest group support. This allows for rapid integration moves on the one hand. Integration, however, can also easily be stopped. Kembayev (2016)
comes to the sober conclusion that the EAEU main purpose is to support the functioning of the
CSTO, rather than being a dominant integration project on its own.
Internal
Bibliography
Bohr, Annette (2004) ‘Regionalism in Central Asia: New Geopolitics, Old Regional Order.’ International Affairs, 80:3, 485-502.
Borodin, Konstantin/Strokov, Anton (2015) ‘The Customs Union of the CIS.’ Journal of Economic Integration, 30:2, 334-358.
Börzel, Tanja A. (2016) ‚Theorizing Regionalism: Cooperation, Integration, and Governance.‘
In: Börzel, Tanja A. and Risse, Thomas (eds.) The Oxford Handbook of Comparative Regionalism. Oxford: Oxford University Press, pp.
Collins, K. (2004) ‘The Logic of Clan Politics: Evidence from the Central Asian Trajectories.”
World Politics, 56:2, 224-261.
Cooper, Julian (2013) ‘The Development of Eurasian Economic Integration.’ In: Dragneva, Rilka and Wolczuk, Kataryna (eds.) Eurasian Economic Integration. Law, Policy, Politics. Cheltenham, UK: Edward Elgar. pp. 15-32.
Delcour, Laure (2015) ‘Between the Eastern Partnership and Eurasian Integration.’ Problems of
Post-Communism, 62: 316-327.
Ericson, Richard E. (2012) ‘Eurasian Natural Gas: Significance and Recent Developments.’ Eurasian Geography and Economics, 53:5, 615-648.
Internal
Frear, Matthew (2013) ‘Belarus: Player and Pawn in the Integration Game.’ In: Dragneva, Rilka
and Wolczuk, Kataryna (eds.) Eurasian Economic Integration. Law, Policy and Politics. Cheltenham, UK: Edward Elgar. pp. 119-138.
Glazyev, Sergei (2015) ‘Russia and the Eurasian Union.’ In: Dutkiewicz, Piotr and Sakwa, Richard (eds.) Eurasian Integration – The View from Within. Routledge. pp. 84-96.
Gurova, I. and Yefremova, M. (2010) ‘Potentsial regional’noy torgovli SNG [The potential for
regional trade in the CIS]. Voprosy Ekonomiki, 7: 108-122.
Hancock, Kathleen J. and Libman, Alexander (2016) ‘Eurasia’. In: Börzel, Tanja A. and Risse,
Thomas (eds.) The Oxford Handbook of Comparative Regionalism. Oxford: Oxford University
Press, pp. 202-224.
Hartwell, Christopher H. (2016) ‘Improving Competitiveness in the Member States of the Eurasian Economic Union: A Blueprint for the Next Decades.’ Post-Communist Economies, 28:1, 4971.
Kassenova, Nargis (2013) ‘Kazakhstan and Eurasian Economic Integration: Quick Start, Mixed
Results and Uncertain Future.’ In: Dragneva, Rilka and Wolczuk, Kataryna (eds.) Eurasian Economic Integration. Law, Policy and Politics. Cheltenham, UK: Edward Elgar. pp. 139-160.
Kembayev, Zhenis (2016) ‚Regional Integration in Eurasia: The Legal and Political Framework.‘
Review of Central and East European Law, 41: 157-194.
Internal
Korosteleva, Elena (2015) ‘Belarus between the EU and Eurasian Economic Union.’ In: Dutkiewicz, Piotr and Sakwa, Richard (eds.) Eurasian Integration – The View from Within. Routledge.
pp. 111-125.
Krickovic, Andrej (2014) ‘Imperial Nostalgia or Prudent Geopolitics? Russia’s Efforts to Reintegrate the post-Soviet Space in Geopolitical Perspective.’ Post-Soviet Affairs, 30:6, 503-528.
Krickovic, Andrej and Bratersky, Maxim (2016) ‘Benevolent Hegemon, Neighborhood Bully, or
Regional Security Provider? Russia’s Efforts to Promote Regional Integration after the 20132014 Ukraine Crisis.’ Eurasian Geography and Economics, 57:2, 180-202.
Mankoff, Jeffrey (2009) Russian Foreign Policy: The Return of Great Power Politics. Plymouth:
Rowmann & Littlefield.
Myant, Martin and Drahokoupil, Jan (2008) ‘International Integration and the Structure of Exports in Central Asian Republics.’ Eurasian Geography and Economics, 49:5, 604-622.
O’Neal, Molly (2014) ‘Russia in WTO: Interests, Policy Autonomy, and Deliberations.’ Eurasian Geography and Economics, 55:4, 404-421.
Saivetz, Carol R. (2012) ‘The Ties that Bind? Russia’s Evolving Relations with Its Neighbors.’
Communist and Post-Communist Studies, 45:3-4, 401-412.
Sultanov, Bulat (2015) ‘Kazakhstan and Eurasion Integration.’ In: Dutkiewicz, Piotr and Sakwa,
Richard (eds.) Eurasian Integration – The View from Within. Routledge. pp. 97-110.
Internal
Tarr, David G. (2016) ‘The Eurasian Economic Union of Russia, Belarus, Kazakhstan, Armenia,
and the Kyrgyz Republic: Can It Succeed Where Its Predecessor Failed?’ Eastern European
Economics, 54:1-22.
Trenin, Dmitri (2011) Post-Imperium: A Eurasian Story. Washington, DC: Carnegie Endowment.
Internal
Table 1
GDP
(cur- Export value Exports
of Food exports Fuel exports Manufac-
Ores
rent USD, in index
goods
and (% of mer- (% of mer- tures exports metal
bn)
services
(% chandise
chandise
(% of mer- ports
of GDP)
exports)
exports)
chandise
(% o
exports)
chand
[High-
expor
(2000=100)
technology
exports
(%
of manufactured
ex-
ports)]
Russia
1’331
324
29.5
4.7
63.0
20.5
6.1
[13.8]
Kazakhstan
184
519
28.5
4.6
68.0
15.1
12.1
[41.2]
Belarus
55
364
60.0
15.6
28.9
48.7
0.9
[4.3]
Armenia
11
505
29.8
31.2
6.4
17.3
44.4
[5.3]
Kyrgyzstan
7
328
36.2
18.3
9.7
46.0
[11.9]
5.7
Internal
Table 2
Russia
Kazakhstan
Belarus
Armenia
Kyrgyzstan
Netherlands
Italy
Russia
Russia
Switzerland
(40’198)
(8’294)
(10’301)
(214)
(471)
China
China
Britain
China
Uzbekistan
(28’335)
(6’163)
(2’929)
(192)
(350)
Italy
Netherlands
Ukraine
Germany
Kazakhstan
(16’204)
(4’745)
(2’512)
(147)
(314)
Germany
Russia
Netherlands
Iraq
Russia
(15’906)
(3’126)
(1’149)
(141)
(85)
Japan
France
Germany
Georgia
UAE
(14’426)
(2’588)
(1’074)
(136)
(82)
Kazakhstan
Belarus
Kazakhstan
Kazakhstan
Belarus
(10’301)
(30)
(522)
(4)
(6)
Note: Numbers in brackets are exports in millions of USD, 2015.