The Eurasian Economic Union and its main integration directions (2018)

_ Yuri Kofner, head, Eurasian sector, Centre for Comprehensive European and International Studies (CCEIS), National Research University “Higher School of Economics”. Moscow, 22 June 2018.

The Eurasian Economic Commission: what it is and what it does

The Eurasian Economic Commission (EEC) is a supranational regulatory body that sets out the general rules of the game for the five countries of the Eurasian Economic Union (EAEU) – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. Decisions of the Commission do not require additional approval at the national level and are binding for all countries. The Eurasian Commission as a whole performs functions similar to the European Commission, but the activities of the EEC only involve economic competencies.

In the sphere of the Commission’s activities there are nine directions, which are supervised by the respective blocs. They are: integration and macroeconomics, economics and financial policy, industry and the agro-industrial complex, trade, technical regulation, customs cooperation, energy and infrastructure, competition and antitrust regulation, domestic markets, informatization, information and communication technologies.

In a number of areas – technical regulation, customs tariffs, trade agreements with third countries, anti-dumping and antitrust investigations – the Commission has direct powers. Thus, a number of key areas of economic activity were transferred to the supranational level. For example, third parties now have to conduct dialogue on cooperation in the field of technical regulation or on the formation of a free trade zone, not with the countries separately, but with the EEC.

Only economic policies, no political agenda

The agenda of the Commission does not include any political issues. All the work of the EEC is aimed at implementing the provisions of the EAEU Treaty (29 May 2014), in which the member states outlinde exclusively economic goals. Of course, it takes time for them five member state to see in practice the exclusively economic nature of the Eurasian Union. Howecer, the interest of more than 40 countries and associations to develop trade and economic cooperation with the EAEU is a bright indicator of the awareness of the economic orientation of the Eurasian Union by external players.

Unlike the European Commission, the EEC operates on the basis of the principle of equal representation: each voice of each member country has the same weight, regardless of its economic power or population size. There is no doubt that the Eurasian Union is the answer of the post-Soviet countries to the global economic challenges and rapid changes in the world economic relations. It is not a political project.

Three years of the Eurasian Economic Union: first results

After the entry into force of the Treaty on the establishment of the EAEU, three years have passed. A relativly short time since the formation of the Union, but the real results of Eurasian integration are already visible today. First of all, one of the indicators of the effectiveness of integration is the volume of mutual trade. Despite the fact that due to objective external circumstances, the volume of mutual trade in the first two years decreased slightly, in 2017 there was already a significant growth – 26.1%, the total volume amounted to 54.2 billion US dollars. In particular, the trade between Belarus and Kyrgyzstan grew 2.5 times and amounted to 123.5 million US dollars. Despite the relatively small volume of trade, this increase is an obvious example of the effectiveness of Eurasian integration.

In 2017, the total GDP of the EAEU in constant prices increased by 1.8%, to $ 1,8 trillion at current prices. In 2017, the total GDP per capita in the EAEU countries in current prices increased by 21.1% and amounted to 9859 US dollars. It should be noted that the positive annual dynamics of both GDP volume and GDP per capita is observed for the first time since 2014.

In 2017 the Eurasian Economic Union as a whole experienced positive dynamics in industrial production, production of agricultural products, freight turnover and passenger, retail trade, volumes of foreign and mutual trade. In particular, passenger turnover grew by 6.8%, freight turnover – by 5.6%, agricultural production – by 2.5%.

In general, for all member states the positive effects of EAEU integration are due to economies of scale, the large capacity of the common market. Due to supranational law, more modern and perfect jurisdiction and regulation in different sectors are being formed. A common market of pharmaceuticals and medical products with new regulation has been launched in 2016. Substantial agreements have already been reached on the formation of common electricity, oil, gas and transport markets. Joint projects in the field of space, machine-tool construction, agriculture, new technologies (biomedicine, photographic equipment, etc.) are emerging.

The new EAEU Customs Code

The new EAEU Customs Code (adopted 1 January 2018) is one of the most important achievements of the Union. One of the main updates of the new code is the transition towards electronic document management. Now, if there is an electronic digital signature, most foreign trade operations can be performed via the Internet, interacting with the information system of the customs authority. As a result, registration time of the customs declaration was halved and the release time for goods at the border was decreased six times.

The transition process towards the implementation of  the EAEU Customs Code goes without any major problems or conflicts. The code has two main principles: Firstly, within the single customs territory there should be a single customs regulation without any exemptions. Secondly, the regulation system of foreign economic activity in the Union should be fully automated.

Most of the norms previously regulated at the national level were unified and standardized in the text of the new customs code. At the current stage of the implementation of the EAEU Custom Code, the Union member states face two important tasks. Firstly, it is necessary to adopt and enforce reformed national laws on customs regulation. Kazakhstan has already done so. Secondly, the Eurasian Commission will have to develop about 100 decisions in the next two years to implement certain provisions of the EAEU Customs Code. On their basis, customs services will have to refine their information systems. The EEC has already begun this process. It will take another two to three years for all the progressive novels that have been put on paper to work on the ground throughout the entire Union.

The first months of implementation of the EAEU Customs Code showed not only a positive effect, but also determined further working areas to improve the Union’s customs regulation. It was decided to reinvent the high-level working group, which was involved in the development of the EAEU Customs Code. Now its main tasks are the formation of uniform practice in all EAEU member states in the application of the new code and the elimination of emerging discrepancies in legislation.

Barrier free trade: towards a single domestic market

The key goal of the Eurasian Commission’s activities is to create a single market within the EAEU where goods, services, capital and labor will move freely. Therefore, the EEC is constantly and in different formats working to remove obstacles towards the single domestic market. These obstacles are divided into three types: barriers, exemptions and restrictions.

Barriers mean the obstacles in violation of the EAEU legislation. Restrictions mean the obstacles caused by lack of legal regulation of economic relations, the development of which is envisaged by the Union’s legislation. Exemptions mean the exceptions (departures) provided by the EAEU legislation for non-application by a Member State of common rules for functioning of the domestic market of the Union.

In April 2017 the EEC published a “White Paper” with information about agreed barriers in EAEU domestic market. The report listed a total of 60 barriers. Since then, in 2017, 13 barriers were eliminated in various spheres of economic activity. For example, in the sphere of labor migration, it was possible to resolve the issue of providing workers from other EAEU countries with medical aid in the Russian Federation. Since 2 January 2017, they can, on an equal footing with Russian citizens, have access to social services.

Eliminating restrictions and exemptions is a more complex process. In order to eliminate exemptions and restrictions, a road map was drawn up in which mechanisms and deadlines for their elimination have been outlined. The road map for 2018 – 2019 was adopted in October 2017 and is already being actively implemented. It provides for the elimination of 17 restrictions and exemptions. They concern, inter alia, the mutual recognition by member states of documents on academic degrees and academic ranks, the harmonization of requirements for the training of drivers, the recognition of bank guarantees for public procurement purposes, etc.

The Eurasian Economic Commission is gradually working towards the formation of a common services market of the EAEU. As for now, harmonization of national legislation covers 49 service sub-sectors, which thus are part of a the common service market within the Union. Together they constitute about 55% of the total volume of the EAEU’s service sector. Another three sectors will be harmonized by the end of 2018. And in 2019 – 2020 another nine service sectors will become part of the common service market. A working group has been created to monitor how the harmonized rules of the comon market for services operate within the Union. The share of services in GDP of both developed and many developing countries exceeds 50%. In the case of the EAEU this figure is over 60%.

Priority areas are also the creation of a common electricity market by 2019, common markets for gas and oil and a common financial market by 2025.

By 2025: a common finance market

In accordance with the EAEU Treaty the participating countries agreed to form a common financial market with a supranational regulatory body. Its headquarters will be located in Kazakhstan, either in Almaty or in Astana, next or in its new international finance center.

Currently, on behalf of the Supreme Eurasian Economic Council, where the EAEU heads of states convene, national (central) banks, together with the governments of the member states and the commission are developing the Concept for the formation of the EAEU common financial market.Discussions on its content are currently ongoing.

The common financial market will be formed in three aspects. Firstly, by the removal of barriers and restrictions that impede the mutual access of bankers, brokers, investors and consumers of financial services to each other’s markets. Secondly, by the creation of conditions for the effective regulation and use of new financial technologies that radically change the image of the financial market. In this regard, the concept is likely to reflect the development of financial innovations, the use of promising financial technologies and their regulation in the common financial market of the EAEU in the future. Thirdly, work on harmonizing financial legislation of the membe states is already being carried out and should be compete by 2025.

Digital economy: one of the new priorities

The Eurasian member states are faced with the task of deepening and institutionalizing all the norms and directions outlined in the EAEU Treaty. Digital transformation is now recognized as one of the most effective tools for achieving this goal. The leadership of the EAEU countries believes, and the Eurasian Commission shares this opinion, that digitization of such spheres of cooperation as customs regulation, agriculture, industry and trade will significantly improve the domestic effectiveness and external competitiveness of the Eurasian Union. This work will be carried out in four directions: the transformation of common markets, sectoral and cross-sectoral transformation, the development of digital infrastructure and the digital transformation of management of integration processes. The contribution of digital projects and initiatives can make up to 11% of the expected aggregate growth of the GDP of the EAEU by 2025.

In October 2017, the presidents of the member states approved the main directions for implementing the Digital Agenda of the Eurasian Ecomomic Union until 2025. This digital agenda is a program of digital transformation and envisages increasing the competitiveness of the EAEU on the basis of cross-sectoral digital technologies and digital platforms. This is a new form cooperation, now in the digital dimension as well.

In total, six initiatives have been approved: on digital trade, on digital transport corridors, on digital industrial cooperation, on an agreement on sharing sensitive data and a on system of regulatory “sandboxes”. The first initiative concerns the traceability of goods. The concept of its implementation is already being prepared and it is aimed not just marking the producty as a way to protect against counterfeiting, but also at monitoring and analysing of the entire product life cycle.

There are still difficulties with differences in legislation on digitalization in the EAEU member states, which all inherited outdates ways of management and administration. In view of  the global digital transformation the main idea is to get rid of regulatory barriers and restrictions and create more liberal yet unified conditions for the development of the digital economy.

The Eurasian Economic Commission is activly studying the experience of other international organizations in building digital processes, e.g. the European Union and the Association of Southeast Asian Nations (ASEAN). The EEC initially was advised by the World Bank Group in these issues. Now both the commission and the member states have plunged into the topic and the Eurasian integration agenda is already difficult to imagine without digital transformation.

Literature:

  1. Treaty of the Eurasian Economic Union (EAEU). Astana. 2014. // http://greater-europe.org/archives/4460
  2. Eurasian Economic Union. Facts and Figures. M.: EEC. 2017. – 80 p. // http://greater-europe.org/archives/3351
  3. EAEU Development Prospects up to 2025. Working Paper. Special Issue / 2017 / Russian International Affairs Council (RIAC). – Moscow: NPMP RIAC, 2017. – 96 p. // http://greater-europe.org/archives/3879
  4. Eurasian Economic Union. St. Petersburg: EDB ED, 2017. – 296 p. (Russian: Yevraziyskiy ekonomicheskiy soyuz. Sankt-Peterburg: TSII YEABR, 2017. – 296 s.). // http://eurasian-studies.org/archives/5312
  5. The EAEU Statistics. (Date of last access: 20.06.2018). // http://www.eurasiancommission.org/en/act/integr_i_makroec/dep_stat/union_stat/Pages/default.aspx
  6. World Bank Group. The EAEU 2025 Digital Agenda: Prospects and Recommendations. Washington D.C. – Moscow. 2018. – 40 p. // http://greater-europe.org/archives/5270

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