Belarus and Russia: An Integration Project Stalled

In the end, it's a matter of sovereignty


Summary

Since gaining independence from the Soviet Union in 1991, Belarus has been one of Moscow’s closest allies. The country is a critical part of the buffer between Russia and the rest of Europe. With Russia to its east, EU and NATO members to its west, Ukraine and the Black Sea to its south and the Baltic states to its north, it’s in a strategically valuable position. Moscow needs to keep Belarus squarely within its sphere of influence, and Minsk has for the most part obliged.

But when the conflict in Ukraine broke out, things changed. Wary of Russia’s intentions, Belarus started warming up to other potential partners, increasing economic cooperation with China, trying to gain greater access to EU markets, and intensifying military cooperation with the United Kingdom.
Still, the two countries have a long history of partnership and cooperation, including as members of an organization called the Union State. Formed in the 1990s, the Union State originally envisioned a fully integrated union between the former Soviet republics. So far, this vision hasn’t been realized, but both countries have signed treaties outlining such a future and theoretically at least are working toward it. Renewed efforts to develop the Union State have been made, to no surprise, just as Belarus has been getting closer to European and Asian countries. Just last month, the presidents of Russia and Belarus attended a meeting of the Supreme State Council of the Union State. But there’s a limit to how integrated these two nations can become.
 
The Foundation of the Integration Project
For Belarus, the 1990s were an uncertain time. It was unclear whether Belarus was a viable state without Moscow’s leadership. Its economy was fragile and its institutions immature. It needed support, and many understandably looked to the devil they knew in Russia for financial and political support. Russia was a ready and willing partner. It wanted to demonstrate that it was possible to reintegrate, however informally, the Russian Federation with the other former Soviet republics. Efforts at integration between the two, therefore, began almost immediately after the collapse of the Soviet Unión. 
 
It’s from this context that the idea of the Union State emerged. One of its biggest backers, at least initially, was Alexander Lukashenko, Belarus’ first and only president. He believed that the promise of reunification with Russia would calm fears of, and endear him to, those who thought the country couldn’t make it on its own – and there were many. It also gave him some leverage in his negotiations with the Russians.
So what is the Union State? In theory, it is a single political and economic entity comprising Russia and Belarus that would share military capabilities, a currency, a legal system and so on. It would also establish a single legislature, a Cabinet and other government bodies, as well as symbols of national unity such as a flag and anthem.
But in reality, the Union State has evolved into a kind of alliance on matters ranging from trade and economic development to military coordination. The first precursor to the Union State was the Commonwealth of Belarus and Russia, established in 1996. A year later, it turned into the Union of Belarus and Russia. In 1999, the two countries signed the Treaty on the Creation of a Union State of Russia and Belarus, which created the Supreme State Council, the Council of Ministers and the Permanent Committee of the Union State. The need for a Union Parliament was also established, but it never came to fruition.
The union was meant to be modeled after the USSR, and in some superficial ways its architects achieved their purpose. The agreements signed by the two countries state that they would share a common foreign policy, defense and security strategies, monetary and tax systems, budgets and customs policies. Russia and Belarus agreed to a foreign policy agenda for 2018-19 during their meeting in June, and they are part of a common market through their membership in the Eurasian Economic Union. In 2000, the Union State established a budget to fund the programs and projects carried out by the organization as well as the organizational bodies set up by the treaty. Its total budget for 2018 is 6.9 billion rubles ($110.6 million), consisting of 3.2 billion rubles in contributions from Russia and 1.7 billion rubles from Belarus, as well as 2.1 billion rubles in non-tax revenue. Some 4.9 billion rubles will be spent on 34 programs and activities.
But many other elements of the union have seen little progress. This is partly because, for Belarus, the need for integration grew weaker as time went on, and the desire for sovereignty grew stronger. The project has also hit some roadblocks along the way. In 2010, relations between Russia and Belarus began to deteriorate. Just two years earlier, Russia invaded Georgia in support of two breakaway regions backed by Moscow. Though Belarus generally supported Russia’s moves there, it was also unnerved by them and so considered improving ties with the West.
There were also disputes over economic matters. Russia wanted to decrease oil exports to Belarus and diversify its imports after its markets became saturated with Belarusian goods. But in 2011, tensions started to ease, possibly because Belarus was struggling economically and needed financial support. That year, gross domestic product growth fell to 5.5 percent compared to 7.7 percent in 2010. It reached 1 percent in 2013 and dipped into the negative digits thereafter.
 
 



The Union State is now very different from what it was intended to be. It provides a framework for cooperation on a multitude of issues, but it allows both countries to maintain their sovereignty where it matters.
 
Areas of Integration
Integration between Russia and Belarus has focused on two main areas. The first is defense. One of the goals of the Union State is to develop a coordinated defense policy, which explains why the deepest level of coordination has happened on military matters. Both countries are members of the Collective Security Treaty Organization, a group consisting of former Soviet states that requires all members to come to each other’s defense if attacked. Coordination is necessary if they are to deter outside aggression.
Russia operates two military facilities in Belarus: the Hantsavichy early warning radar station and the 43rd Communication Center of the Russian navy near Vileika, which transmits orders to Russian submarines. Russia has floated the idea of setting up an air base in Belarus, but so far, Lukashenko has been reluctant. The two countries also coordinate military procedures, provide technical support for each other’s armed forces and cooperate on border issues. They have devised a strategy to coordinate supplies, troops and resources in the event a military threat emerges.
They conduct dozens of military exercises every year. In 2017, for example, the Zapad exercises included 12,700 troops from both countries according to Moscow (although external estimates put the number much higher) and were aimed at testing capabilities to respond to external aggression.
Another important element of defense coordination is military supplies. During the Soviet era, Belarus (unlike Ukraine, for example) was not a critical part of the USSR’s defense industry, although it was a transport hub and logistics support center for Soviet troops in Eastern Europe. Today, this relationship continues to be one-sided. Some 98 percent of Belarus’ military equipment is supplied by Russia. Russia is dependent on Belarus only for specialist parts produced by the Minsk Tractor Plant used in some mobile military equipment.
The other main area in which Belarus and Russia coordinate is the economy. This is the real foundation of the integration project. Like any small state, Belarus has a small domestic market and thus depends on trade to keep its economy running. Exports make up roughly half its GDP.
 
 



Russia is Belarus’ largest trading partner. Some 43 percent of its exports go to Russia, while 57 percent of its imports come from Russia. Yet Russia’s share in Belarus’ trade has declined overall since 2000, meaning that although Belarus is still heavily dependent on Russia, it has become less dependent over time.
Much of the trade between these two countries is related to the energy sector. Belarus relies on Russia for its energy needs, but it also uses Russian oil and gas to create other products for export. Roughly 30 percent of Belarus’ total exports are oil and gas products, sending about 15 million tons of oil products to Europe alone every year. The problem, however, is that Russian companies don’t have to pay duties on the goods they export to Belarus, thanks to their free trade zone.
But when the products are processed in Belarus and then exported to the rest of Europe, companies do have to pay a duty to the Belarusian government. (These re-exported energy products have become particularly attractive as some countries have grown hesitant to do business with Russia.) Russia thus has been considering slashing oil and gas exports to Belarus so that it can make money off the duties itself. This issue has caused a rift between the two, as any cuts in this trade could create a serious economic downturn in Belarus considering its dependence on oil and gas exports. In the first quarter of 2018, the federal government earned 466.5 million Belarusian rubles ($233.8 million) from duties on oil products, accounting for 8.8 percent of tax revenue.
Meanwhile, Belarus is Russia’s fourth-largest export destination and third-largest import supplier. Belarus accounts for less than 6 percent of Russian exports and imports. On a basic level, therefore, Belarus is clearly more dependent on Russia than Russia is on Belarus. Belarus supplies food products, machinery and technical goods to Russia. Companies in Belarus supply components such as electric motors and diesel engines to assembly plants in Russia and also Ukraine. Assembly of some finished products is also carried out in Belarus for export to Russia.
Russia is also Belarus’ main investment partner. According to Belarus’ state statistics agency, Belarus attracted $9.7 billion in foreign investments in 2017, more than 38 percent of which came directly from Russia. At the end of 2016, loans from the Russian government and Russian banks totaled $6.61 billion, or 48 percent of Belarus’ external debt. Russia provided Belarus with two state loans totaling $870 million for a period of 10 years in 2015 and another $600 million in 2016. In April 2017, Russia agreed to refinance Belarus’ debt in the amount of $700 million, though this loan has not yet been issued.
 
The Future of the Unión
Clearly, Belarus and Russia are heavily integrated in terms of economics and defense. Still, this does not reach the level of integration that was envisioned with the creation of the Union State. So is the initial vision of the Union State still a possibility? The short answer is probably not for one central reason: Both countries value their sovereignty too much to allow another country to dictate their foreign and domestic policies. They are unlikely, for example, to adopt a single currency or a constitution because this could require serious economic and political reforms that neither is prepared to make.
In terms of economic integration, there’s another critical hurdle: Both countries are part of the Eurasian Economic Union, which established a common market between the five member states. In some ways, therefore, the need for the Union State has diminished. And despite the common market, member states still employ protectionist measures and accuse each other of unfair trade practices. Belarus regularly accuses Russia of applying duties on Belarusian goods, setting unfair prices for energy and restricting entry at the border.
Carrying out a coordinated foreign policy has also become more difficult. In 2016, Belarus adopted a new defense doctrine that advocates neutrality and states that the country will avoid military conflicts. This is inconsistent with the concept of the Union State, whereby if Russia engages in a conflict, Belarus would be expected to follow. It also states that Belarus will coordinate with multiple parties at the same time. But in a union, Russia may want to restrict Belarus from developing ties with certain nations or groups, particularly NATO.
In addition, Russia’s annexation of Crimea has complicated relations between Minsk and Moscow. Belarus was critical of the Russian incursion and hasn’t officially recognized Crimea as part of Russia. Moscow expected support from its neighbor when it imposed sanctions on goods from some Western countries in response to Western-imposed sanctions on Russian goods. Instead, it found that embargoed goods from the EU were illegally making their way to the Russian market through Belarus.
Belarus has faced heavy political and diplomatic pressure to side with Moscow on the conflict in Ukraine. Whenever Minsk falls out of line, Moscow threatens to pull some of its economic support or increase its military presence in Belarus. Russia has also tightened controls at the border and deployed operational units of the FSB border guard service there. In February 2017, units from the Federal Customs Service showed up in Belarus.
Integration will continue but likely on a situational basis. When it suits the needs of both countries, they will cooperate, but neither wants to commit to a union that might force them to take positions they don’t want to take. Belarus in particular has already seen that integration can turn into dependency, and that can be used as a lever to bend its policies and behavior to Moscow’s benefit.

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