Eurasian Union Economics vs Geopolitics

Global Centre Stage

‘Eurasianists’ in Kremlin’s corridors of power nurture the hope that the small technocratic exercise in economic integration represented by the Eurasian Economic Union in its current format could evolve into something bigger – an integrated, Russian-led and globally relevant Eurasia. Dr Nicu Popescu has more

On January 1, 2015, a Customs Union between Russia, Belarus and Kazakhstan was turned into the Eurasian Economic Union (EEU), to promote integration across a wide number of spheres going well beyond external trade tariffs.

Yet, this union is not really what Russia had hoped. There are in fact two Eurasian Unions: one real, and the other imaginary; one economic, and the other geopolitical. The real EEU is an international organisation like many others. It has a legal identity, a secretariat and is staffed by officials just like any other international organisation. But the plans for a geopolitical union are more imaginary than ever.

President Putin launched the latest phase of Eurasian integration in an article in Izvestia in October 2011. It was supposed to be his key policy objective during his third presidential term in the Kremlin. His vision was for the Eurasian Union not just to foster a new round of post-Soviet reintegration, but he wanted to turn the Eurasian Union into one of the ‘building blocks’ – at par with the EU, NAFTA, APEC and ASEAN – of ‘global development’.1

Yet the EEU is not really major news for either the global economy or global geopolitics. First of all, Russia represents 85 percent of EEU’s economic potential, and the appearance of such a Union is not really creating a new global economic centre that is significantly bigger than Russia. The Union might matter on a regional scale, but is not really changing global geo-economics. Secondly, at roughly $3 billion, the size of the EEU is two-thirds that of India and slightly bigger than that of Brazil. That is considerable, but not really a global game changer either.

The Real Eurasia

The organisation of the EEU is in many ways inspired, though not identical, to that of the European Union. At the lowest level of decision-making is the executive – the ‘College of the Eurasian Economic Commission’ – which consists of 12 members, called ministers or members of the board, who preside over 23 departments. Each EEU country delegates three members of the commission. Viktor Khristenko, a former Russian deputy prime minister, is chair of the commission, appointed for a mandate of four years.

The Council of the Eurasian Economic Commission oversees the executive. This consists of four serving deputy prime ministers in the governments of Russia, Belarus, Kazakhstan and Armenia, who formally take most decisions. The Council also has an annual rotating presidency. Then, on the political front, there are two more levels of decision-making – the High Eurasian Economic Council in the format of prime ministers and the High Eurasian Economic Council for presidents only.

Decision-Making

In the early days of the Customs Union, decisions in the Eurasian Commission were taken through a system based on weighted voting where Russia had 55 percent of the votes and Belarus and Kazakhstan 22.5 percent each, with decisions taken by two-thirds of the votes. That system was subsequently dropped and the Eurasian Commission’s decision-making (at its Council level) is currently based on the principle of unanimity between states. Yet such a system also means that the more the EEU will enlarge, the more complicated decision-making is likely to become.

Shaky Economics

While it is too early to talk of the economic impact of the EEU, its economic foundations look uncertain. The main reason for this is the fact that in the two decades following the dissolution of the USSR, Russia’s weight and importance as a trading partner for most post-Soviet states has declined drastically. The economic rise of China and the opening of relations with the EU have profoundly altered the patterns of interdependence in the vast territory of what was once the Soviet Union. As a result, the EU and China are bigger trading partners than Russia for every post-Soviet country, except Belarus and Uzbekistan.

Another concern is that while a Customs Union would be expected to boost trade among partners due to the elimination of customs procedures, and raise tariffs for non-Customs Union members, the record in this respect has been rather mixed. After an initial boost in trade in 2010-2012, trade among the Customs Union members has actually fallen in 2013-2014. In 2013, intra-Customs Union trade fell by 5.5 percent and in the first half of 2014 by nearly 12 percent.3 Data suggest the biggest winner since 2010 has been Belarus, which managed to increase its exports, but Kazakhstan seems to be on the losing side of the equation, with its exports to Russia and Belarus falling by 3.6 percent in 2012, 5.5 percent in 2013 and almost 22 percent in the first half of 2014.4

These initial complications might still be overcome. But in purely trade terms, the EEU is not entirely and unquestionably attractive. Therefore, a whole system of other incentives needs to be built into the edifice of Eurasian integration.

Political Commitment

To balance the Eurasian Union’s questionable economic foundations, Russia offers a whole range of subsidies for states to induce them to join the body, in the form of cheaper gas, loans, or repayment in the event of compensation claims that might arise in the WTO. Gas price subsidies are offered to potential members of the EEU. But most important of all for many post-Soviet states is the perspective of the Eurasian Union keeping the Russian labour market relatively open for migratory flows.

Yet this creates problems of dependence on Russia’s own economic health, which in turn depends on the oil price or the state of its relations with the West. The drastic deterioration of the Russian economy in late 2014-2015 due to falling oil prices and Western sanctions over Russian military interventions in Ukraine also means that Russia has fewer resources to subsidise the Eurasian project, which again limits its potential for success or attractiveness for other states. Not a single Eurasian partner of Russia wants to suffer economically because of Russian policies in Ukraine, which weakens the foundations of the project again.

The prospect of free movement of labour is probably the single most attractive feature of the Eurasian Union from the point of view of most post-Soviet states, particularly those of Central Asia. Retaining access to the Russian labour market for hundreds of thousands of migrants is a matter of crucial socio-economic stability, if not survival.

Currently, millions of workers, primarily from Central Asia, enter Russia legally without visas, but then work illegally without work permits. The sheer scale of migration flows has triggered a backlash in public opinion, with 82 percent of Russians now in favour of introducing visas for countries of Central Asia. However, with the creation of the Eurasian Union, the Russian government is moving in the opposite direction – it aims to liberalise and open the labour market for EEU members. The tension between widespread anti-immigration sentiment among the Russian population and Russia’s foreign policy of consolidating and expanding is only likely to grow.

Geopolitical Eurasia

‘Eurasianists’ in Kremlin’s corridors of power nurture the hope that the small technocratic exercise in economic integration represented by the Eurasian Economic Union in its current format could evolve into something bigger – an integrated, Russian-led and globally relevant Eurasia. Some in Russia have even higher stakes, as they hope that Eurasian integration ‘could destroy the global dominance of the West and put an end to US hegemony.’5 Yet, the harder Russia has tried to promote a viable structure for post-Soviet reintegration, the less it seems to have worked. This is because virtually all post-Soviet states, relying as much as possible on other powers, have sought to either frustrate or drive up the costs of Russian-led integration initiatives.

Deepening vs Widening

The real Eurasia (as represented by the regional economic body) and the imaginary Eurasia (as represented by Putin’s vision of a geopolitical superbloc) are not necessarily mutually reinforcing. The EEU, i.e. the real Eurasia, needs a small number of countries, a manageable number of internal tensions, and some economic benefits to make it minimally self-sustaining.

The logic of a geopolitical Eurasia is the opposite. It suggests that the larger the Eurasian Union, the stronger Russia’s great power image will be – both domestically and internationally. It also needs to materialise relatively fast, before Russia loses even more economic relevance in the post-Soviet space to China and the EU. But the rush to expand creates the risk that adding too many carriages to the train or pushing the Eurasian engine to drive too fast will derail it.

All this is complicated by the fact that there is not really a rush to join the Eurasian Union. None of the declared Eurasian Union accession candidates are enthusiastic Eurasians. Armenia joined it reluctantly. Kyrgyz president Almazbek Atambayev, referring to the Eurasian integration, stated in December 2013 with undisguised regret that ‘Ukraine has a choice, but unfortunately we don’t have much of an alternative [to the Eurasian Union]’.6

The China Factor

China is another factor in the Eurasian equation. It is a bigger trading partner of the Central Asian states than Russia, and its trading relationship with these states is made more complicated by the increase in tariffs that joining the EEU implied for Kazakhstan and will imply for Kyrgyzstan.

Yet, rather than opposing the EEU outright, China has tried to circumvent it. Its calculation is that the EEU would not disrupt its projects and investments in the states of Central Asia – from acquisitions of raw materials to the building of gas pipelines, roads and railways – which are not subject to tariff restrictions. And the states of Central Asia, from both inside the EEU and outside, would continue hedging and navigating between Russia and China. It also considers that maintaining good political and economic relations with Russia is more important than the negative consequences of the EEU for Chinese exports to small Central Asian countries. Thus, from a Chinese perspective, the EEU is not necessarily seen as a positive development, but at the end of the day its effects are still manageable.

Plans Hit Reality

The dream for a geopolitical Eurasia in many ways stumbled over Ukraine. Initially, Ukrainian elites – under the ousted president Victor Yanukovych as well as after – persistently refused to join the project. With the Russian annexation of Crimea and military intervention in Eastern Ukraine, Russia not only found itself de facto at war with Ukraine, but also estranged virtually all other post-Soviet states. It also drove its own economy into Western sanctions, which leaves it with fewer resources to subsidise Eurasian integration.

While the EEU exists, the geopolitical Eurasia project faces a host of complications. The Russian state can, of course, afford to subsidise a few small countries like Kyrgyzstan or Armenia. As a Russian expert put it, a few billion dollars is not a great sum to be paid as a ‘subscription fee for the status of a great integrationist power’7. But even then, Eurasia, with Russia having a few small states as allies and a rather reluctant partner in Kazakhstan (a country that seeks to avoid geopolitically conflictual entanglements at all costs), is hardly the geopolitical heavyweight that Russia hoped to build.

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Author

Dr Nicu Popescu

Dr Nicu Popescu is senior analyst at the EU Institute for Security Studies in Paris, specialising on Russia and the post-Soviet space. He previously worked as advisor on foreign policy and EU affairs for the prime minister of Moldova (2010, 2012-2013). He is author of a book on EU Foreign Policy and the post-Soviet Conflicts: Stealth Intervention (Routledge, 2011).

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    References

    1. Vladimir Putin: ‘NovyiIntergrationnyiProektdliaEvrazii’, Izvestia , 3 October 2011. Available at: http://izvestia.ru/news/502761.

    2. Data from DG Trade, European Commission. See: http://ec.europa.eu/trade/policy/countries-and-regions.

    3. Eurasian Economic Commission, Data released on 25 August 2014. Available at: http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_stat/test-trade/analytics/Documents/Analytics_I_201406.pdf.

    4. Annual Statistical Bulletin of the Eurasian Economic Commission for 2011. Available at: http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_stat/test-trade/publications/Documents/Int_2011.pdf, 2012 - http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_stat/trade/Documents/Int_2012.pdf, and 2013 - http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_stat/test-trade/publications/Documents/Int_2013.pdf.

    5. Elena Ponomareva and LubovShishilina, ‘KrahOperatsiiVostochnoePartnerstvo’, 18 June 2014. Available at: http://zerkalokryma.ru/specialproject/novorossiya/predsedatelstvo_latvii_v_es2015_vostochnoe_partnerstvo_vmesto_ili_vmeste_s_rossiej/

    6. ‘Atambayev: Kirghizia vstupit v TS, eslibudutvypolnenytrebovaniaBishkeka’, Interfax, 16 December 2013. See: http://www.interfax.by/news/belarus/1143832.

    7. ‘DeniPobedyLukashenko’, Gazeta.ru, 10 May 2014. Available at: http://www.gazeta.ru/business/2014/05/09/6024573.shtml.

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