The EAEU as an integration structure: challenges and opportunities for the EU

_ Andrey Kinyakin, associated professor, chair of comparative politics Peoples’ Friendship University of Russia (RUDN).

Original: А. Kinyakin, «Eurasian Economic Union as integration structure: challenges and opportunities for the EU», in Jochen Franzke/Bogdan Koszel/Andrej Kinyakin (Hrsg.): Die Europäische Union und Russland. Krisenursachen und Kooperationswege., Welttrends (Potsdam: Potsdamer Wissenschaftsverlag, 2016).

Introduction

The coming into force in January 2015 of the treaty the Eurasian Economic Union (EAEU) opened a new page in the history of macro-level integration processes on the Eurasian continent. The creation of the new integrationist structure, which initially encompassed three former soviet republics – Russia, Kazakhstan and Belarus and then was extended with accession of two more countries – Armenia and Kyrgyzstan awoke not only the special interest to the problematic of integrationist processes in the post-soviet space but made a lot of interest parties to admit the fact that Eurasian integration not only geared up but was transferred to the new level.

First it should be attributed to the European Union (EU), which is not only the largest integrationist structure on the European continent ever but which is still widely regarded as successful best-practice of the integration policy on the macro-level.1

The creation of the EAEU, which accounts more than 181 mio people, 22 sq km, 20% and 15% globally produced oil and natural gas respectively, being the nearest neighbor to the European Community forced the EU to preoccupy itself with the question of elaboration its policy towards the EAEU and formulation of basic approaches to the interrelation with the newly created integrationist structure which long before its formal existence was deemed both – partner and counterweight to the EU.2

The Eurasian project – the logic of post-soviet integration

But whether the EAEU, which was created with the regard to the European integration experience, could really match or compete with the EU? To answer this question one should examine more thoroughly the history as well as the nature of the Eurasian Economic Union.

The EAEU has a long and uneasy way to go. The idea of the Eurasian project which could reintegrate the former soviet republics and encompass the so called post-soviet space on the economic ground, was initially exerted in late 1994 by the president of Kazakhstan Nursultan Nazarbaev. His main argument was the strong economic ties between the post soviet states, which can lead to the strong economic union on the basis of “economic pragmatism”.3

But the realization of this idea was delayed due to the wide-spread skepticism among many former soviet republics. First it can be attributed to the “path-dependence problem” –
malfunction of the integrationist structures, which were designed to substitute the USSR and to be more flexible form of integration.4

Secondly it should be attributed to the attempts of some post-soviet counties to distance themselves from Russia – the successor of the Soviet Union and dominant player in the postsoviet space.5

It took certain time and several unsuccessful attempts to reintegrate the post-soviet space (for instance the Union State between Russia and Belarus) before the process of Eurasian
integration was put under way with the establishment of the Eurasian Economic Community (EurAsEC) in 2000. The main function of this structure was efficient promotion of Single Economic Space (SES) – single-market entity, encompassing five former soviet republics – Russia, Kazakhstan Belarus, Kyrgyzstan and Tajikistan – as well as creation of Customs Union (CU) – free-trade area (FTA), designed to bring the tariff regulation in different post-soviet states to joint standards.6 The premises for the creation of the EurAsEC was legal framework, passed in 1996 by the creation of the FTA within the CIS.

But due to different reasons the Eurasian Economic Community became only partially successful. Although the Common Economic Space didn’t evolve into full-fledged working
project (it was reestablished in 2012 under the name Single Economic Space) the launch of the CU with the creation of all the necessary institutional structure, including the Commission of the Customs Union, creation of the legal framework (adoption of the Customs Code of the CU) as well as accomplishment of technical issues talks between member-states (Russia, Belarus, Kazakhstan) and passage of the joint trade regulation, envisaging the joint technical and certification standards and the mechanism of redistribution of revenues, connected with the external tariffs, proved the effectiveness of the EurAsEC. The most important were abolishment of customs clearance procedure of the goods in the mutual trade as well as enrollment and allocation of the import customs duties.7

In January 2010 the CU was formally launched with the adoption of the common tariff and non-tariff regulation between member-states and by July 2011 got the full strength with the transfer of customs control to the external borders of the CU to the newly created supranational body – Eurasian Economic Commission (EEC) – the main executive structure within the Eurasian project.

The main function of the EEC from the very beginning was boosting Eurasian integration (first of all economic) both – extensively and intensively. The Commission focused on the creation of the common customs territory as well as implementation of the SES, which eventually was put into force in 2012 and became the main achievement of the economic integration.

Besides the launch of the CU, which proved to be economic effective in the early stage of its functioning – mutual trade turnover rose 33,9% and 44,5% in 2011 and 2012 respectively – some founding members (especially Russia) were eager to step up reintegration process in the post-soviet space by inclusion other former soviet republics.8

Prime goals of the integrationist policy became such countries as Kyrgyzstan, Tajikistan, Armenia, Moldova and Ukraine. The extensive rather than intensive integration turned out to be the main direction of activity of the CU – trade bloc which is composed of FTA with a common external tariff. The CU became the corner stone for the creation of the Eurasian Economic Union.

But given the long-standing skepticism among the post-soviet countries, wary about the real intentions of the CU (it was regarded as political rather than economic structure) as well as strained relationships (especially after conflict in Georgia in 2008) and not benevolent attitude towards certain CU member-states (namely Russia) as well as active role of the third parties (first of all the EU, which initiated in 2009 the Eastern Partnership program, aimed at promoting close cooperation with substantial integration into the European project for the post-soviet countries by signing the Association Agreements) the enlargement of the CU – the aim promoted largely by Russia – didn’t turn out to be a success.

Among the post-soviet states alongside “the founding fathers” – Russia, Kazakhstan and Belarus – only Armenia and Kyrgyzstan opted to became the member-states of the new project of the Eurasian integration – Eurasian Economic Union, which was initiated in May 2014 by signing the treaty, which came into force six months later, and became the latest and the most high level of the Eurasian integration.

The conflicting nature of the Eurasian project

The Eurasian Economic Union from the very beginning was designed as a “building block” – on a par with such structures as the EU, NAFTA, APEC and ASEAN and was designated to carry out the tasks of “global development”.9

First of all in the economic sphere. Among the main goals of the EAEU embedded in the foundling treaty are: creation of conditions for comprehensive development of national (member-state) economies; improvement of living standards for the populace; formation of the single-market for goods, services, capital and labor resources within the union; comprehensive modernization, coordination aimed at improvement of the competitiveness of the national economies within the global economy.10

All these goals correspond with the main principles of the Eurasian Economic Union, which were designed on the early stage of the Eurasian integration:

  • expansionism and extension over the post-soviet space (mainly extensive enlargement);
  • cohesion and buildup of inner cooperation within the Union;
  • institutionalization as supranational structure – establishment of economic and/or political contacts with different states and/or regional organizations;
  • recognition as “building block” by different actors – states, international organizations;
  • alliance-building as the continuation of macro-level integration – formation of strategic alliances on supranational level.

In the case of alliance-building one should not only emphasize the fact that the EAEU used the model of European integration (more European Union than European Economic Community) as a pattern but also take into consideration the “missionary function” of the Union as a “bridge” between the East and the West.11

The latter can be attributed to the idea of Russian President Vladimir Putin – one of the “founding fathers” of the Eurasian Economic Union – about the creation a “harmonious economic community stretching from Lisbon to Vladivostok”, making the hint on the possible cooperation between the EAEU and the EU.12

Stressing the importance of the EAEU as integrationist structure in Eurasia he mentioned “deep analysis” of the 40-year long integrationist experience of the EU and perspectives of its adaptation for the EAEU.13

But although the Eurasian Economic Union has some resemblances with its European counterpart differences between these two integrationist structures are more visible, not to say striking.14

And it couldn’t be attributed only to the fact that the EU is well-established and long-standing structure, which proved its viability as economic and political actor whereas the EAEU is unfledged and in many senses “loose” entity which has to prove its consistency for the years to come as well as different “weight-classes” between these organizations. But more important – to the very essence of the EAEU and the EU as integrationist structures.15

First it should be stressed that decision-making process within EAEU is more sophisticated than one of the EU. It’s four-tiered governance structure, including Supreme Eurasian Council – the main decision-making body, Eurasian Economic Commission – the main executive body, the Eurasian Intergovernmental Council (executive and legislative body) as well as Court of the Eurasian Economic Union (judiciary body) is more pyramidal and vertical concerning the decision-making process.

Practically all the decisions are carried out by the Supreme Eurasian Council, whereas the Eurasian Economic Commission – permanent structure – plays the minor and secondary role. This contrast with more horizontal and diffuse governance organization of the EU, where not only the European Council (heads of EU member-states) and the Council of Ministers (ministers of the EU member states) as well the European Commission (the main executive body) and European Parliament (legislative body) are deeply incorporated into the decision-making process. Moreover the huge part of the decisions are carried out by the EC, which plays the core role in the EU governance structure.

Second, although the EAEU was designated to be union of the equals, in reality the inequality in decision-making process prevail. The dominate role plays the key member-state – Russia, which influences all the processes within the structure. And decision-making process is not the exclusion. Moreover this influence has the long-lasting history, dating back to the early days of existence of the Eurasian project.

For instance, during the first years of functioning of the CU the decision-making process was carried out on system of weighted voting, where Russia had 55% of the votes and Belarus and Kazakhstan 22,5% each, with decisions taken by two thirds of the votes. That system was subsequently dropped and the current, based on the principle of unanimity between the member-states, was introduced in 2007 after a row of inner conflict between the member-states of the Eurasian project.16

But the division on “senior” and “minor” partners within the EAEU is feasible up to the present day. Especially concerning the discussion of the accession of the new member-states. For instance, Belarus and especially Kazakhstan are traditionally cautious in respect of accepting the new members without assessment of the economic and political impacts on the structure. And in general these countries are eager to focus on the development of the intensive integration as a prime goal of the EAEU buildup.

Whereas Russia was/is a vigor protagonist of the accession of the post-soviet states into the Union and extensive integration as the main direction of organizational buildup.17 This contradiction in vision between EAEU member-states about the mission of the structure constitutes the major difference between the Eurasian Union and the EU. In the Eurasian Economic Union the political expediency frequently prevails over all other reasons (first of all economic efficiency). It makes the structure vulnerable and turns out to be major source of contradictions between member-states. During the relatively short period of functioning the EAEU/CU – 2007-2015 there were a bulk of inner conflicting situations, which had mostly political reasons and contained the certain risk of derailing the whole Eurasian project.18

Among the most well-known is the opposition of Belarus and Kazakhstan to Russian attempts to turn the Eurasian Economic Union into the political organization on a par with the EU instead of focusing mainly on the development of the economic cooperation, what barely led to the open conflict.19

The latest and the most striking illustration of politically motivated contradictions between member-states of the EAEU is the unwillingness of Belarus and Kazakhstan to support Russian “antisanctions” – the embargo on foods from western countries carried out by Russia in response to the sanctions imposed by western countries over the conflict in Ukraine.20

It showed not only the deep rift between member-states in vision of handling the Ukrainian crisis but resulted in violation of common custom policy complicated by the problem of importing of the banned western “antisanctions” goods to Russia from the territory of the other EAEU member-states.

But the most disturbing point in this situation is the dominance of unilateral instead of multilateral (based on the unanimity of votes) approach towards decision-making process within the EAEU which endangers the very essence of this organization.

Primarily it can be attributed to the Russian position. Failing to get support and facing the opposition from Belarus and Kazakhstan over imposing “antisanctions” Russia began to act  unilaterally. This manner of action is rather typical for Russia external policy, which is based on the underpinning the bilateral contacts on national level at the expanses of the multilateral relationship. But the case of “antisanctions” is rather remarkable, given the fact that promoting it Russia acted not on its own, but on behalf o the EAEU. This made some experts believe, that there is the Russian monopolization of the external policy agenda of the Eurasian Economic Union.21

The “antisanctions” against as well as closure of the Russian market for the Ukrainian goods in the row over introduction of the FTA between Ukraine and the EU showed the weak institutionalization of the interrelations within the EAEU, and prevalence of ” certain willingness” over existing legal framework.22

The Eurasian Union: geopolitics prevail

The Ukrainian crisis became the test-paper, which highlighted the simple but sorrowful fact – founding member-states of the EAEU have different vision towards the Eurasian integration.

Whereas for Kazakhstan and Belarus (partly also for Kyrgyzstan) the EAEU is mainly economic project and their approach is based on the geoeconomic concept – orientation on the creation of common market within the EAEU and getting the access to new markets, Russia regards the Eurasian Economic Union as predominantly geopolitical project aimed at achieving the goal of reintegration (by extensive means) of the post-soviet space into one entity.

The Russian approach, which is widely regarded to serve the “neo-imperial” ambitions, but in fact is connected with the specific vision of the Russian authorities the role of the country as “assembler” of the post-soviet space as well as geostrategic interests eventually prevailed in defining the outlines of the EAEU as integrationist structure. This can’t be attributed not only to the traditional Russian dominance in the Union, but also readiness of Russia to finance the structure in order to achieve the necessary goals.

This statement can be illustrated by the Russian attempts to pursue the policy of “subsidizing” the member-states of the EAEU. It is evident in case of not only existing member-states, but also in the case of “newcomers”.

For instance, Armenia, which became member-state of the EAEU in January 2015, mainly due to geopolitical reasons (the need of military alliance with Russia) managed to negotiate not only huge rebates for Russian natural gas supplies but also was promised huge credits and investments into infrastructure.23 Nicu Popescu suggests that the gas rebates were a disguised Russian “award” for not only for accession to the EAEU but also for not sighing the Association Agreement with the EU.24

Initially the situation with political-bound “subsidies” was typical for the relationship within the CU/EAEU between Russia and Belarus. Belarus leader Alexander Lukashenko not only managed to bargain huge rebates for Russian hydrocarbon supplies (especially lucrative were the supplies of Russian cried oil, which was refined on Belarus refineries and then exported towards the EU) as well as stabilization credits for volatile Belarus economy.25

Moreover, during the talks about distribution of tariff quotes between the EAEU member-states Belarus negotiated the increase of its quote, what made the country the obvious beneficiary of the Eurasian integration. But deterioration of the economic situation in Russia in 2013 as well as changes in Russian taxation system (introduction of so-called “tax maneuver”, connected with the export of hydrocarbons) endangered the additional “subsidies” for Belarus economy. It forced the Belarus Lukashenko, who is very displeased by the constant Russian attempts to turn the EAEU into political project (most conflicting point was introduction of the single currency) to make harsh steps. 26

The tension was deescalated after Belarus managed to bargain the prolongation of the Russian duty-free oil supplies, which is one of the main sources of revenues for Belarus economy.27

But the “political-motivated subsidies”, which is not only the main instrument of Russian influence within the Eurasian Economic Union, but the incentive for organization structure development couldn’t be guaranteed for the long-term period due not only the slowdown of the Russian economy but also certain political and geopolitical risks.28 Risks That contributes not only vulnerability of the EAEU but endangers further stable development of the organization making the question of viability of the Eurasian project the existential one. Especially given the so-called “path-dependence problem” – a number of failed attempts to set up the Eurasian project.29

This viability issue along with conflict of interests between member-states due to different visions (geopolitical vs. geoeconomic) as well as botched image of the Union as a result of Ukrainian crisis, waning attractiveness amidst economic slowdown in Russia and lack of substantial resources turn out to be major risks for the EAEU as a long-standing project. Moreover, weighting the positive and negative factors for the structure one should admit the negative ones outweighs the positive factors – unique geostrategic location, historical and cultural affinity as well as huge economic potential and active expansionist policy.

Notes:

1 Schäuble, Wolfgang: “Europe still an example of successful integration”, The Nation. 12 October 2012. URL: http://www.nationmultimedia.com/opinion/Europe-still-an-example-of-successful-integration-30192317.html

2 Evrazijskiy Ekonomicheskiy Soyuz. Voprosi i otveti. Cifri i fakti, 2014. – p. 17-19.
3 Nazarbaev, Nursultan: “Evrazijskiy Soyuz: ot idei k istorii buduschego”, Izvestia, 25 October 2011.
URL: http://izvestia.ru/news/504908
4 Especially the Commonwealth of Independent States (CIS), which was established in 1991 as a union of 11 former
soviet republics.
5 This trend found its embodiment in the creation of the alternative integrationist structures like GUUAM (Georgia,
Uzbekistan, Ukraine, Azerbaijan and Moldova), which was created in 1997 or gaining of non-bloc-country status by
Turkmenistan.
6 Evrazijskiy Ekonomicheskiy Soyuz. Voprosi i otveti. Cifri i fakti, 2014 – p.14.
7 Evrazijskiy Ekonomicheskiy Soyuz. Voprosi i otveti. Cifri i fakti, 2014 – p.16.

8 Eurasian Economic Commission Statistics. URL: http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_stat/tradestat/Pages/default.aspx
9 Popescu, Nicu: Eurasian Union: the real, the imaginary and the likely. EUSS: Challiot Paper Nº 132 — September 2014 – p. 9.
10 The Treaty on the Eurasian Economic Union, Art. 3.

11 Putin, Vladimir: “Novyi Intergratsionnyi Proekt dlja Evrazii”, Izvestia , 3 October 2011. URL: http://izvestia.ru/news/502761.
12 Putin, Vladimir: “Von Lissabon bis Wladiwostok”, Süddeutschen Zeitung, 25 November 2010. URL: http://www.sueddeutsche.de/wirtschaft/putin-plaedoyer-fuer-wirtschaftsgemeinschaft-von-lissabon-bis-wladiwostok-1.1027908
13 Ibid.
14 For instance, the resemblance is visible not only in names of main governing bodies but generally in the governance structures of both structures.
15 Popescu, Nicu: Eurasian Union: the real, the imaginary and the likely. EUSS: Challiot Paper Nº 132 — September 2014 – p. 13.

16 Popescu, Nicu: Eurasian Union: the real, the imaginary and the likely. EUSS: Challiot Paper Nº 132 — September 2014 – p. 13.
17 Knobel, Alexander: Evrazijskiy Ekonomicheskiy Soyuz: perspektivy razvitiya i vozmozhniye prepjatstviya, Voprosy Ekonomiki, 2015, No. 3, – p. 92.
18 One should mention not only the so-called trade wars (for instance, “energy wars” and “milk wars” which Russia waged with Belarus in 2007, 2010 and 2014 but also confrontation between Russian and Kazakhstan over Kyrgyzstan accession. The latter is widely regarded as the hub for cheap Chinese goods (contrary to Kazakhstan neighboring Kyrgyz Republic is WTO member-state and has low import tariffs, enabling the influx of goods from China). 19 “Pered Soyozom stavjat znaki prepinanija”, Kommersant, 23 December 2013. URL:
www.kommersant.ru/doc/2376409 20 “Ni Belarus’, in Kazahstan ne otkazhutsja to importa iz ES”, Vedomosti, 12 August 2014. URL: http://www.vedomosti.ru/politics/articles/2014/08/12/soyuz-lomitsya-ot-edy

21 Dragneva, Rilka; Wolczuk, Kataryna: The EU and EAEU: geopolitical problems cannot be addressed by technocratic measures, 3 March 2015. URL:
http://www.europeanleadershipnetwork.org/the-eu-and-eeu-geopolitical-problems-cannot-be-addressed-by-technocratic-measures_2490.html
22 Ibid.
23 “Armenija poluchila skidku na gaz na vhode v Tamozhennij Soyuz”, RIA Novosti, 2 December, 2013. URL: http://ria.ru/economy/20131202/981373218.html 24 Popescu, Nicu: Eurasian Union: the real, the imaginary and the likely. EUSS: Challiot Paper Nº 132 — September 2014 – p. 23.
25 Within the last decade the Belarus economy experienced two major economic downturns – in 2011 and 2015.

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