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 UniĆ³n
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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