A year since its establishment, the Eurasian Economic Union has been largely unsuccessful in its efforts to bring its member states economically and politically closer together. In 2016, the trade grouping needs to focus more on free trade, less on exerting political influence.
Russian President Vladimir Putin, centre, before the meeting of the Supreme Eurasian Economic Council (SEEC) in the Kremlin. From left - President of Belarus Alexander Lukashenko and President of Armenia Serzh Sargsyan; from right - Press Secretary of the Russian President Dmitry Peskov, Chairman of the Board of the Eurasian Economic Commission Viktor Khristenko, President of Kazakhstan Nursultan Nazarbayev. Photo: Sputnik
For a very different take read: "The Eurasian Economic Union continues to focus on global economic integration"
As of Jan. 1, 2016, exactly one year has passed since the Eurasian Economic Union (EAEU) of Belarus, Kazakhstan and Russia was formed. The Union, envisioned as a way to improve trade ties among the former Soviet republics and increase Eurasian integration amongst countries sharing a common heritage, faced an incredibly busy and challenging first year of existence year unlike that seen by any other trade grouping.
While the Union hastily underwent its first wave of enlargement, adding new member states Armenia and Kyrgyzstan, the more pressing issues of economic decline and financial crisis dominated the thoughts of policymakers of Russia and Kazakhstan. With 2016 showing continued economic turmoil, the presence of the EAEU seems more anachronistic by the day. Did the Union have any key achievements that can be built upon in 2016, or will the weight of global forces show that the emperors of the EAEU countries indeed have no clothes?
One step forward, several steps back
As a trade grouping or customs union, the EAEU has moved at breakneck speed in its integration, traversing ground that took the European Union (EU) much more time to cover. For example, the EAEU underwent its first wave of enlargement a mere day after coming into being, admitting Armenia on January 2, 2015. The treaty on the EAEU was signed in May 2014 and agreement was reached on Armenia’s accession already in October 2014.
Unlike the EU, which took 15 years from its founding as the European Economic Community (EEC) to admit more members, the EAEU then added a second new member in the form of Kyrgyzstan in August of last year. Talks are also currently underway with Tajikistan to accede, but as of the moment there are no serious plans for countries outside of the former Soviet Union to join the grouping.
Apart from the impressive speed of enlargement, global economic conditions have ensured 2015 was a tough year for the constituent members of the EAEU and thus for the Union itself. One need look no further than the continued contraction of the Russian economy due to sanctions, internal policies of Russia (including military engagement in Ukraine), and (above all) the drop in oil prices to understand that the EAEU is currently an economic union without a driver.
In fact, the EAEU has played a deleterious rather than beneficial role over the past year, as the wide-open integration has enabled Russia’s shocks to impact Kazakhstan more forcefully than they would have otherwise. Kazakhstan, Belarus, and Kyrgyzstan already had a substantial portion of their trade institutions and infrastructure oriented towards Russia, meaning that whatever transpired in Russia economically was always going to affect them.
With Kazakhstan’s trade links with Russia increasing as a result of the Union, however, it is even more exposed to not only economic volatility, but also currency and financial volatility. Likewise, Armenia, a country that has been far less dependent on Russia economically in recent years, has voluntarily opted to import economic uncertainty from Russia instead of dragging down the grouping.
Economic forces external to the EAEU also appear to be conspiring against the Union moving forward. The plummeting price of oil has almost single-handedly decimated the Russian budget and the ruble, and the prospect of oil wars between Iran, Saudi Arabia and Russia do not appear to signal the return of $100 a barrel prices anytime soon.
This, of course, not only impacts Russia, but also Kazakhstan, which derives the vast majority of its export earnings from oil and oil products. Similarly, China’s slowdown, accelerating over the past four months, is coming at the worst time for Russia and other EAEU members, as the closing of markets in the West has meant a scramble to the East. Without the engine of global growth that was China to help prop up global demand, investors are becoming increasingly skittish about other emerging market economies and casting a hard look at the EAEU. The tide will not turn anytime soon, casting further doubt on the reason for the EAEU’s existence.
Continued confusion on goals
As an organization, the EAEU continues to suffer from a clear lack of focus. In this, the Union also appears to be in overdrive, as it is suffering a similar crisis of identity as the EU, but without the benefit of 58 years of operation.
In the first instance, there has always been a tension within the EAEU on its ultimate goal, that is, broader or deeper integration. At times, spurred on by Russia, the Union has lunged at both, attempting to add members while simultaneously lowering barriers amongst countries. The burst of accession in 2015 showed that perhaps broadening the agreement had triumphed, a feasible approach for a trade group that had suspiciously little diversification of exports.
However, the broadening appeared to only be a political ploy to create a rival to the EU in the wake of Ukraine’s and Moldova’s Association Agreements, somehow threatening Brussels with the economic might of Yerevan and Bishkek (even more surprisingly, the addition of Armenia and Kyrgyzstan did not improve the fortunes of the organization). As noted above, there has been no serious talk of bringing in countries that were not part of the Soviet Union, a missed opportunity that could help actually diversify the Union and make it less Russia-centric.
Unfortunately, deepening of the EAEU also runs up against a formidable obstacle, in that Russia’s idea of integration is inevitably a group of countries that listens to what Russia says unquestionably and carries out reforms at the command of the Kremlin. Such an eventuality has been worried about in Astana and even Minsk for some time, especially when President Vladimir Putin has questioned Kazakhstan’s existence as a state, and Belarus and Kazakhstan have already voiced displeasure at the Kremlin’s invasion of Ukraine and refused to go along with Russian embargoes of Western goods.
In response, Russia has at times banned transit trade of goods that could be re-exported within the bloc (as seen in the Russian prohibition of transporting Polish apples to Kazakhstan in 2015). Thus, while there may appear to be unanimity in goals within the Union, below the surface, there is much tension.
Indeed, at its heart, the EAEU faces the same dilemma that pushed Ukraine into the arms of the EU, as, while Belarus may want deeper political integration with Russia in the long-term, Kazakhstan and Armenia want no such thing, preferring to keep the EAEU as an economic grouping, and even then at a much more superficial level that retains economic sovereignty. This desire mirrors the exact same concern that Ukraine had for years prior to Maidan, as even pro-Russian leader Viktor Yanukovych was unwilling to move towards ever deeper union with Russia in the EAEU.
This tension eventually led to the events of the past two years and Yanukovych’s downfall – once he succumbed to Russian pressure to cast his lot with the EAEU, the crowds turned out on Maidan to protest against the inevitable loss of sovereignty to Russia. In short, even the person who was personally predisposed to the EAEU was turned off by Russian tactics (including a trade war which Russia initiated in early 2013), showing that not even bullying, threats, or seizure of territory can keep a country in a trade bloc if it does not want to be there.
Even as an economic grouping, the EAEU is facing difficulties in understanding the extent of integration. The lack of monetary coordination amongst members of the group has become legendary, an inevitability given the ruble’s precipitous decline over the past year and a half. But disjointed macroeconomic policies, especially in a realm of free movement of capital and labor, can create large competitive disparities within and for the businesses in the EAEU.
As of January 2016, there has been little move towards coordinated macroeconomic policies, much less structural policies that all members so vigorously need. Without such coordination, at an even cursory level, there is a danger of large regional disparities forming (as has already been seen in Russia), local issues that could create headaches at the national level.
However, as has been pointed out before, the EAEU was not necessarily a doomed experiment - but only if the Union could take up the banner of trade liberalization that had been lost on the battlefields of Europe. Unfortunately, this has not been the case, and the example of the past year has shown that trade is being utilized as just another weapon.
Given this reality and the current crisis plaguing Russia, it is likely that the EAEU will remain as a vestigial institution, enabling visa-free travel from Moscow to Yerevan but otherwise having little beneficial effect on the economies of this trade grouping. The only way in which this can turn around in 2016 is if the focus shifts away from punishing those that Russia disagrees with politically and towards creating a zone that respects free trade.
The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.