Whither Eurasian Integration?

Johannes Linn, PhD, Senior Fellow, Global Economy and Development Program, Brookings Institution. Washington D.C., 16 October 2016. Published for debate.

Obstacles Formidable but not Insurmountable

With the fall of the Bamboo Curtain in Asia and of the Iron Curtain in Europe, the progressive economic integration of the Greater Eurasian supercontinent became possible and by now it has become seemingly inevitable, especially after China announced its One Belt, One Road (OBOR)initiative.

Major infrastructure investments are under implementation or on the drawing board, supported by China, India, Russia, the EU, and by international financial organizations. They are designed to provide East-West and North-South connectivity across Greater Eurasia for energy, transport and telecommunication, and promise to accelerate the integration of the huge Greater Eurasian geographic and economic space. In the past, infrastructure investments have spurred economic integration in Western Europe, in North America, in the Soviet Union, and most recently in China. Indeed, Greater Eurasian economic integration can be seen as the last frontier of the economic globalization process that characterized the seven decades since the end of World War II.

However, in considering the prospects of Eurasian economic integration seven obstacles and risks need to be considered, which may impede the process, even though they will likely not derail it altogether.

First, investments in roads, pipelines, and other “hard” infrastructure projects are generally relatively easy to plan and carry out, as long as there are financial resources and the readiness to cooperate across borders are assured for cross-border networks. But two key challenges arise, beginning with the need for systematic planning and implementation of net-work-wide improvements. Long-distance communication is only as good as the weakest link along the way. This requires the integration of national and regional plans, which is generally extremely weak or altogether absent. Furthermore, operating and maintaining a vast network of new infrastructure creates huge challenges for national governments. The public finances needed to pay for the debts created by these investments and to sustain the infrastructure often cannot be mobilized by constrained national budgets. The institutional capacity to efficiently run and maintain the physical investments is missing in many the countries of Eurasia, especially among the poorer ones.

Second, even more problematic is the provision of the “soft” aspects of efficient connectivity. For transport this includes the development of intermodal connectivity, of efficient customs, health, and other procedures for border clearances, and an absence of corrupt traffic police and other transit impediments behind the border. For trade, this means low tariff and non-tariff barriers, and effective logistical services. For interconnected power systems it means cooperation among power regulators and dispatchers. For all major infrastructure investments, it means that the economic, environmental and social impacts on local communities are fully considered, with detrimental impacts minimized as far as possible and positive development impacts along the infrastructure corridors maximized. None of these soft aspects of infrastructure provision are currently well supplied in many parts of the Eurasia continental space.

Third, the allocation of scarce cross-border natural resources, especially water and in some cases energy, is a common irritant to neighborly relations in some parts of Eurasia. While some Eurasian neighbors have shown that longstanding conflicts over cross- border resources can be amicably settled, as in in the case of European riparians of the Rhine and Danube Rivers, and as between India and Pakistan for the Indus River. However, other regions of Eurasia have a long way to go, especially Central Asia and South-East Asia, including China. The scope for misallocation of natural resources and for conflict over them is therefore significant.

Fourth, in some regions of Eurasia conflicts and security are a major constraint to greater integration, especially in the “belt of conflict” that stretches from the Middle East through parts of the Caucasus and of Central Asia, to the Indian sub-continent, and now even to the East-China Sea. Whether it is closed borders as between Armenia and Turkey and between India and Pakistan, or civil war disrupting transportation routes as in Afghanistan, or international terrorist attacks on major transportation hubs as recently at Ataturk Airport in Istanbul, conflicts and insecurity cause disruptions to and raise the costs of transport, communication, trade and investment. In the future, cyber-crime may also disrupt electronic communication links across Eurasia, as for the rest of the world.

Fifth, on a wider scale, geo-political competition among major powers in and outside the region may interfere with the progress of Eurasian integration. The sanctions against Iran, albeit now lifted, have been a significant impediment to Iran’s integration into Eurasia. The Western sanctions against Russia have reversed the trend towards greater economic links between Russia and Europe. The big question for the future of Eurasian economic integration is whether the relations among major Eurasian powers in the twenty-first century will be more like the peaceful and cooperative relations European countries were able to forge in the post-WW2 era, or whether Eurasia will face a future of major-power conflicts as was typical for Europe until the mid-twentieth century. The apparent breakdown of the post-WW2 political order in Europe over Ukraine and the escalating tensions in the East and South-East China Sea are a reminder that Eurasian integration faces many geopolitical challenges.

Sixth, there are some additional risks that can cause significant, continent-wide disruptions in Eurasia, including epidemics such as the bird flu, illicit drug trade, cross-border criminality, and demographic pressures such as refugees and illegal migration. Climate change may reinforce some of these risks, including due to increased pressures on water, land and other limited natural resources.

Finally, successful super-continental economic integration requires the development of some minimal institutional structures to help plan and finance investments, harmonize regulations and mediate tensions and conflicts. Currently this institutional infrastructure in Eurasia is almost entirely absent. The Asia-Europe Meeting (ASEM) brings together the heads of 53 states of the region for biannual summits, but misses some important countries and it is more form than substance. Sub-regional institutions are either limited in membership, weak, or – in the case of the EU – subject to significant centrifugal pressures. Ultimately, it is not clear that the governments of the Eurasian countries will have the will to surrender parts of their sovereignty to supra-national regional institutions, or that their populations are willing to support greater integration, as skepticisms about the benefits of globalization are dramatically on the rise in many countries.

Three institutional innovations might help mitigate the obstacles and risks. The first is upgrading ASEM along the lines suggested by Michael Emerson. Second, a Eurasian “steering group” of major Eurasian powers, similar to the G20 at the global level, could be established. One compromise for membership might be a combination of permanent membership for major powers and rotating or constituency-based membership for smaller countries. Third, a coalition of key multilateral development banks could provide a platform for the systematic planning, financing, implementation and institution building of Eurasian regional infrastructure. Some of these organizations already cooperate under sub-regional umbrellas and on specific infrastructure projects.

Given all these potential obstacles and risks, is Eurasian economic integration is a mirage? Definitely not so – economic integration is happening and will continue, as the supercontinent catches up with globalization elsewhere in the world. But it will likely proceed fitfully and remain partial, wracked by tensions and even open conflicts. Above all, institutional support will be needed for effective cooperation across the many borders of Eurasia.

Source: https://reconnectingasia.csis.org/

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