Eurasian Economic Union: Achievements, Problems and Forecasts

_ Marina Levina. Bishkek, 6 January 2019.

2018 was difficult for the Eurasian Economic Union (EAEU). Some analysts say that this union is in crisis since certain conflicts have arisen between the former Soviet republics. Nevertheless, there were positive results.

Established in January 2015, the EAEU unites Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia to remove trade barriers and stimulate business development. In May 2018, Moldova received the EAEU’s observer status.

Advantages of integration

The EAEU countries have moved towards the creation of unified markets for goods, services, capital and labor last year.

Entry into force of the new EAEU Customs Code in January 2018 was among the major milestones of the Eurasian integration. The Customs Code was discussed throughout 2017, and its adoption was accompanied by considerable difficulties.

Due to the improvement of the trade technical regulations, the foreign trade of the EAEU countries increased by 21.5% and amounted to $617.2 billion in January-October 2018, with exports growing threefold faster than imports.

A new Declaration on the further EAEU integration was adopted, and nine sectors were added to the single services market. This means that about 55% of the total services provided in the EAEU member countries will be regulated in terms of value.

In 2018, important cooperation agreements were reached with Iran and China. A temporary agreement on the creation of the Free Trade Zone with Iran, which provided for the reduction or zero import duties for a wide range of goods, and an Agreement on trade and economic cooperation between the EAEU and China were signed at the Astana Economic Forum on May 17.

Kazakhstan, more than anyone else in the EAEU, won from the Free Trade Zone with Vietnam, Russian Ambassador to Kazakhstan Alexey Borodavkin told Sputnik.kz news agency. In 2017, the Kazakhstan-Vietnamese trade increased by 48% amounting to $542 million. Exports from Kazakhstan to Vietnam grew by 63% due to an increase in supplies of food, agricultural products, and metals.

Approval of the program to create an EAEU common market for gas, oil and petroleum products on December 6 in St. Petersburg was another important event of the past year. This issue was among the most acute ones, since hydrocarbons provide the lion’s share of the incomes of Russia and Kazakhstan. The program provides for non-discriminatory access to pipelines and market pricing, as well as to oil and petroleum products. It is planned to complete the creation of the common markets for gas, oil and petroleum products by 2025.

Problems

The “gray” import from China, going through Kyrgyzstan and Kazakhstan, is among the most acute problems of the EAEU common market. According to the report of the Eurasian Analytical Club published in November 2018, more than half of all Chinese imports in Kazakhstan and Kyrgyzstan were illegal, and the total damage from smuggling to the EAEU’s economy may exceed $1.5 billion.

To combat this threat, the EAEU countries are introducing an electronic labeling system for goods, the agreement on which entered into force on August 14, 2018. However, the introduction of such labeling is a long and difficult process, the results of which are not expected soon, experts believe.

Among the EAEU key problems, there are also non-tariff barriers in the markets for goods and services, the lack of mechanisms to stimulate production cooperation and clustering, the impossibility of replenishing the EAEU budget through customs duties of the general customs tariff and foreign trade taxes.

Contradictions between Russia and Belarus

The aggravation of the contradictions between Russia and Belarus over the energy resources became particularly clear at the St. Petersburg summit of the heads of the EAEU states on December 6.

According to Belarus President Alexander Lukashenko, the EAEU countries agreed on equal economic conditions for all entities but enterprises in Kazakhstan or Russia work in better conditions than in those in Belarus. “It means that our enterprises will go off the market over time,” he told Russia 24 TV channel. The price for natural gas is much higher for Belarusian companies than for the Russian ones. This affects both the producers and also Belarus as a whole, he said.

Belarus is also concerned about the distribution of import customs duties among the EAEU countries.

Russia, in response, made it clear that it does not intend to subsidize the Belarusian economy anymore, and it requires a real deepening of integration processes.

On the New Year eve, the leaders of the two states reached a temporary compromise but it is clear that the discussion of the integration prospects of Russia and Belarus will continue this year. The prospects of the Eurasian Economic Union will largely depend on how the contradictions between these two countries are resolved, experts say.

Focus on domestic development

In 2019, the EAEU will focus on domestic development. In territorial terms, the Union has now reached a certain limit.

The potential candidate, Tajikistan, which is now dependent on China, refused to join the EAEU, while Uzbekistan, under the new President Mirziyoyev, confirmed the previous course of neutrality.

Therefore, the main EAEU tasks will be the elimination of internal trade barriers, the fight against gray imports, and the harmonization of tax and currency policies.

The sanctions of the U.S. and EU countries will continue to influence the situation in the Russian economy. Since Russia is the driving force of the EAEU, the difficulties in its economy will affect the macroeconomic indicators of the national economies of other EAEU member states.

But the sanctions may be the forceful motivation for the creation of new industries and services in theses countries. So, 2019 opens up opportunities to take advantage of the situation.

External partners contribute to the development of national economies and the strengthening of the EAEU markets. The Union is committed to expanding such partnerships. The preferential agreement of the EAEU with Iran and the creation of the Free Trade Zone in Meghri will bring new opportunities for the EAEU countries.

The work is underway to create a FTZ with Singapore. A negotiation process on similar agreements with Egypt, Israel, India, and Serbia continues.

Innovation, science and production are currently three pillars of the EAEU development, taking into account global trends, said participants of a roundtable on innovation policies held in Astana last year.

Each EAEU member country has its own innovation development strategy, but their policies are not coordinated. It is necessary to create a common program, similar to that in the European Union. Eurasian innovation clusters should include business incubators, technology parks, and joint research and development organizations, experts believe.

Optimistic and pessimistic scenarios

According to the survey conducted by the Eurasian analytical agency, most experts from Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia believe that the EAEU will continue to expand and cooperate with third countries in 2019. The EAEU’s “digital agenda” will help deepen the integration while the resolution of trade disputes between the EAEU countries is less likely.

The experts considered expansion of integration in its limiting terms (the entry of new countries into the EAEU) as not the most likely scenario in the near future.

There is a probability of stagnation in the development of integration processes in the Eurasian Economic Union, due to external and internal factors.

The least likely, but deserving close attention, experts recognized the options for the development of events in which the EAEU would not show the citizens of the participating countries the specific benefits of participating in this integration association and would not conclude new preferential trade and economic agreements with third countries.

According to experts, the risks for the EAEU also include stagnation of trade within the Union.

Some experts also suggested, as extremely unlikely, the possibility of disintegration up to the exit of some EAEU member countries from the Union and the beginning of its collapse. According to experts, high risks could be related to the growing internal contradictions between the Union members.

Source: https://www.timesca.com/

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