Debates: Russian and European experts discuss the idea of integrating the European Union and Eurasian Economic Union, an idea that was voiced by the president of Kazakhstan, Nursultan Nazarbayev, during the St. Petersburg International Economic Forum.

Russian President Vladimir Putin, right, and President of Kazakhstan Nursultan Nazarbayev at the St. Petersburg International Economic Forum, Russia, Friday, June 17, 2016. Photo: AP

On June 17, on the second day of the International Economic Forum in St. Petersburg, the president of Kazakhstan, Nursultan Nazarbayev, brought up the idea of a new integration initiative involving the European Union (EU) and the Eurasian Economic Union (EEU). This “integration of integrations” would bring Russia closer to both its European and Eurasian partners, but just how practical is such an initiative?

Evgeny Vinokurov, director of the Center for Integration Studies at the Eurasian Development Bank (EDB), thinks that negotiation of such an agreement might take 5-6 years. There are at least 20 areas where the interests of the two blocs coincide, from trade in goods and services to a visa-free regime and liberalization of access to financial markets, he said at the Valdai Club session on the sidelines of the forum.

Could such a proposition be viable in the future and what preconditions should there be to build a basis for productive negotiations? Russia Direct reached out to four Russian and European experts to find out their opinions.

Christopher Pissarides, Professor of Economics and Nobel Laureate in Economic Sciences, 2010

It is an excellent idea if it can be done, but I don’t think it’s viable at present because of all the problems that the EU has with Russia and other Eurasian economies and because of the very different levels of economic development. I don’t see it coming about politically.

The way to move forward from the World Trade Organization (WTO) and globalization is to form regional blocs like the EU, Trans-Pacific Partnership (TPP), Transatlantic Trade and Investment Partnership (TTIP), and Eurasian Economic Union. When those blocs mature and work well, then bring them together and let the negotiations move on to the next step.

The president of Kazakhstan might say we should come together – he is right, we should, but let’s first make sure the EEU works, that Trans-Atlantic negotiations go well, that the EU works well and then move on towards further integration.

One of the preconditions of this is for all political and military authorities to show restraint. Many people have said that once the Soviet Union was dismantled the way that it was, NATO should have reciprocated by scaling down its activities and having its member countries focus instead on economic unions and on integrating the Eastern European economies with the more advanced Western European ones, not bringing them into military alliances because some future danger might materialize. There was so much optimism about long-term peace and cooperation in the 1990s but now it’s being largely reversed.

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Oleg Buklemishev, Associate Professor of Economics, Lomonosov Moscow State University (MGU)

The idea of integrating the Eurasian Economic Union and the European Union is quite natural. Notwithstanding the large area that the EEU covers on the map, it is much smaller than the EU in terms of the size of the economy. Based on purchasing power parity, the EU is three times larger than the EEU; in terms of nominal size, it’s almost ten times larger. Hence, in order to be competitive globally, the EEU will still have to establish mutually beneficial ties with bigger economic partners and their integration blocs.

In addition, the EU is now at a more advanced stage of integration covering a wider range of areas, which is at the same time broader than that of the EEU. From this point of view, this accumulated experience might be useful for the development of integration processes within the Eurasian Economic Union. It is likely that the EU may also find such an agreement interesting – it is easier to negotiate with a number of partners at once on the same conditions, than with each of them separately.

However, the implementation of an effective program of mutual integration may prove to be more challenging. Firstly, a serious obstacle for reaching an agreement might be the difference in the level of current integration. Secondly, it will be necessary to make strategic decisions regarding the main directions of future development within each of the integration blocs. Now is not the right time for this due to a number of reasons on both sides. Thirdly, any integration agenda requires the sides to make mutual concessions, agreeing on them might turn out to be an uneasy and painful process. Finally, it is quite hard to imagine a partnership between the EU and EEU while sanctions are in place – this question lies beyond the economic agenda both in the EU and Russia, a leading member of the EEU.

Therefore, it might be argued that the idea of integration makes sense, but it is a bit premature. It would be rational to come back to its realization some time in the future.

Christopher Hartwell, President of the Center for Social and Economic Research in Warsaw (CASE)

This idea is both great and terrible at the same time. On the positive side, it is great because the EEU and the EU should have no barriers between them and the EEU can only benefit from increased trade with the EU. Even just understanding the quality standards and the marketplace in the EU will help business in the EEU immensely. Of course, it will also provide consumers with more choices and perhaps help to force some competition on the EEU’s overly-protected industries (which, as I show in a recent article, desperately need it). Increased trade can also allow for improvement of the EEU's institutional infrastructure, maybe reducing some of the bureaucratic nightmare that comes with trade with EEU states and creating a ripple effect of reform. On the geopolitical side, trade is always a good way to diffuse political tensions, because it creates a lobby interested in good relations.

On the other hand, the way that the initiative has been presented – by the autocratic leader of a bloc that has a democratic deficit – shows just what makes it a terrible idea. Once again, this approach continues to treat trade as a geopolitical game rather than a way to provide choices for consumers, markets for businesses, and enrich a country. Trade agreements are not really free trade, they are just “more-free” trade compared to the alternatives. Economic theory and experience shows us that trade shouldn’t be treated as a game and especially not as a weapon, as Russia is so fond of doing. In fact,  there is absolutely no guarantee that Russia would abide by any rules-based trade regime between the EU and the EEU – they haven't done so up to this point in the WTO, why would they for a free trade agreement (FTA) with the EU? Especially once that has much milder sanctioning mechanisms than the WTO?

Even more interesting, what if Ukraine eventually joins the EU or even just increases its integration with the EU via the Association Agreement? Would there be more or less incentive for Russia to block an EU-EEU agreement? With an FTA, I believe there is actually more incentive for Russia to let Ukraine go because the trade will still be able to flow freely between the two, which would not happen with Ukraine on one side of the wall in the EU and Russia on the other. Of course, Russia’s strategy in eastern Ukraine, to create a frozen conflict which prohibits further integration, may mean that Ukraine will become a black hole in Europe, something that Russia could desire.

Ivan Kapitonov, Senior Research Fellow, Sector for Energy Policy, Institute of Economics at the Russian Academy of Sciences

The initiative proposed by the president of Kazakhstan to integrate the Eurasian Economic Union and European Union has potential, but it’s premature. Generally, it does make sense as, objectively, cooperation with the EEU is more beneficial for Europe than the Transatlantic Trade and Investment Partnership. This is due, first and foremost, to geographic proximity and the number of cooperative links. For Russia, despite the sanctions regime, this opportunity represents a significant practical interest – Russia is linked with the EU through a network of economic and political interests, and development of regional cooperation was and still remains an objective of Russian foreign policy in Europe.

But, apart from the attractive motives that determine the vector for rapprochement that could last for long, is there any practical meaning to it? What and how can we integrate?

It is necessary to understand that the EU stands on the highest stage of integration and the EEU lags behind it in a number of characteristics. Some time ago, there was a term invented for the countries of the Commonwealth of Independent States (CIS): “multi-speed and multi-level integration.”  

It is widely known how such integration ended – the ranks of the CIS thinned out while the strongest countries joined a new bloc. Here the story is similar – the integration of the EEU and EU might happen, but it wouldn’t last long. So, what is possible is not so much an “integration,” but a strengthening of interaction, serious negotiations, including in the areas of transport and energy infrastructure, that would allow to solve the most troubling questions that exist between the two mega blocs.