By: Ekaterina Zolotova
2020 marks the five-year anniversary of the Eurasian Economic Union, the regional grouping meant to do everything from eliminating trade barriers and technical regulation to enhancing cooperation in any number of economic sectors.
Although it comprises Kazakhstan, Kyrgyzstan, Armenia and Belarus, Russia is the union’s primary architect and its chief beneficiary, especially as a means to give Russia much of the regional influence it has lost since the end of the Soviet Union.
The EEU originated as a customs union created by Russia in 2015 and initially included Kazakhstan and Belarus. Dedicated to bringing economic integration to Eurasia, they resolved to coordinate their policies on trade, tariffs and taxes as well as in the energy, industrial, transportation and agriculture sectors.
The freedom of movement of goods, services, capital and labor and coordinated economic policies appealed to Armenia and Kyrgyzstan, which were looking for ways to boost their economies, so they joined the union later.
And though greater trade among the union’s members generally helped them all, Russia was always the hub. It has better trade and economic relations with the union’s constituent parts than they have with each other – not to mention a stronger and more developed economy. About 40 percent of Kazakh imports and 24 percent of Kyrgyz imports come from Russia, and Russia is Armenia’s and Belarus’ top trade partner.
So far, the EEU has failed to achieve its economic objectives. Trade turnover inside the union and with non-members decreased because of the fluctuation in oil prices, the weakening of the Russian ruble, and the sanctions the West has levied against Moscow.
Immediately after the creation of the EEU, mutual trade within the organization fell by 7 percent to $42 billion in 2016 compared to $45.6 billion in 2015.
In subsequent years, bilateral trade began to grow, but the growth rate slowed to 2.3 percent in 2019, compared to 11 percent in 2018 and with 26 percent in 2017.
And there is still no sign of the free movement of goods, services, labor and capital. Is there any reason to believe a new five-years strategy, which is currently under discussion, will be more successful?
The answer lies partly in the fact that the union’s biggest problem is the different goals and objectives of its members. Belarus, Kazakhstan, Kyrgyzstan and Armenia are looking to improve their economies; Russia is looking to improve its global standing by enhancing its regional influence.
Tethering Central Asia to the Russian economy is helpful in this regard, but unlike in the Soviet era, its members have other economic options (dependent though they still may be on Russia today).
One option, of course, is China, which has successfully strengthened its trade and economic relationships with Central Asian countries. Trade today is 65 times higher with the region than it was in 1995. China has surpassed Russia as the top trade partner for some countries and has become a much more important one to states such as Kazakhstan and Kyrgyzstan. More than anything, former Soviet satellites need to improve their economies, and China has money to spend – so much so that it’s difficult for Russia to keep pace.
Still, Russia still has a leg up in the region. It can regulate, to some degree, the Chinese money that comes in through the customs union. But more than that, the benefits are such that EEU members want to be a part of it, so long as they don’t surrender too much of their sovereignty. The absence of trade barriers and the free movement of factors of production, correctly implemented, should be generally good for these countries.
They can be used as transit zones for access to new markets, which are extremely useful for young economies of the region that want to diversify their foreign trade. Having a common energy sphere could give them access to European oil and natural gas and thus help stabilize their economies. These are just a few of the reasons they voluntarily joined the union.
The economic benefits aside, every country has other reasons to be a member of the EEU. Armenia, for example, had hoped that if it joined the union then Moscow would take its side in the Nagorno-Karabakh conflict. (So far, it hasn’t.
Moscow continues to sell weapons to Azerbaijan.) Kazakhstan and Kyrgyzstan had hoped to use their memberships, not to mention their proximity to Russia and its markets, to attract highly qualified foreign specialists and to obtain raw materials and financial and technological opportunities to stabilize and industrialize their economies. For Kyrgyzstan and Armenia, a single labor market could reduce unemployment – and thus ease social tension at home.
Belarus had been counting on a single oil and gas market in 2021–24 and common pricing principles.
Though the union can stake its claim on a handful of success stories – it created a common labor market and immigration has been simplified – none of its members have gotten all they wanted.
Today, only 49 sectors, and only 50 percent of the total volume of services, are integrated into a single market. There are still 14 exceptions, 38 restrictions and 19 trade barriers. The creation of the EEU electricity market has been postponed until the beginning of 2025. In some instances, the EEU has done more harm to integration than good.
Kyrgyzstan, for example, has accused Kazakhstan of imposing restrictions on the passage of transit goods, while Kazakhstan has accused Kyrgyzstan of not sufficiently engaging in customs administration.
This has left EEU members wondering if the benefits are worth the costs, which has in turn led to what Belarusian President Alexander Lukashenko called “coerced integration” by Russia. It’s no secret that since the beginning of the year, Russia has halted oil supplies to Belarus amid price negotiations.
Russia will continue to make every effort to postpone conversations about changes in trade in the near future. It's willing to engage in political cooperation and to support projects in education, medicine and the digital economy – measures that will only increase Russia's own clout (by, for example, increasing the use of the Russian ruble for trade), but full economic cooperation, including the creation of a common energy market, can present a challenge to the stability of the Russian economy.
First of all, it will no longer be possible to hold back financial assistance or large-scale investments.
Although Russia managed to generate additional funds for the union in 2019, Moscow has prioritized helping its own slowing economy over the EEU's. (The government isn’t especially interested in flooding its markets with foreign goods either, especially when it is stubbornly trying to pursue an import substitution policy.)
Second, Russia isn’t ready to merge its energy market. Though it has made progress toward weaning itself off its dependence on oil exports, it’s still interested in making money off them until certain measures come into effect.
Last, the economic benefits afforded by the EEU are Russia’s trump card. If Moscow settles trade issues now, it loses leverage in the future. The promise of better perks is the best chance it has to lure former Soviet satellites back into its orbit and away from the European Union, China and the U.S.
In other words, many of the reasons why Russia is unwilling to make economic concessions to EEU members are the same things that make Russia unable to make them. It doesn’t bode well for the next five years.
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