Was the Eurasian Economic Union able to create a common market for services?

_ Jurij C. Kofner, non-residential research fellow, Skolkovo Institute for Emerging Markets Studies; editor-in-chief, analytical media “Eurasian Studies”. First published on: Vienna Institute for Security Policy. Munich, 29 December 2019.

The EAEU Treaty sets forward the freedom of trade in services, foundation and investments. Therefore, member states are to conduct a phased liberalization of this sphere. In particular, mutual administrative cooperation of the competent national authorities has to be organized

By 2019, 52 sectors were approved in which the single market for services should apply. According to the EEC’s own assessment this counts for approximately 55% of the total volume of services provided in the Union countries. According to the liberalization agenda, another 5% of the service sector shall be covered by the common market by 2025. However, estimates by PhD M. Khassenov, assistant professor of the Gumilev National Eurasian University (Kazakhstan) suggest that the single market for services in 52 sectors only affects 16.8% of the total number of positions listed in the United Nations Central Products Classification.

Due both to the complex nature of service markets and of their trans-border regulation in particular, as well as due to the relative importance of services in the trade and economic composition of the EAEU countries (Table 2), there has been little progress so far in creating a truly singly market in this area. Thus, from 2014 to 2018 the share of intra-Union services exports in total services exports of the EAEU member states remained relatively unchanged at a very modest average of 12.3% (Chart 1, Table 1).

Chart 1. EAEU services exports structure (internal vs. external, in %, 2014-2018)

Source: Table 7.

There are three main reasons for this. Firstly, early on temporary exemptions were established for certain service sectors for Kazakhstan and the non-application of single market rules (“horizontal” restrictions) in the field of retail and wholesale trade in certain categories of goods for all member states of the Union. Again, due to separate WTO obligations Kazakhstan does not apply the rules of the single services market in 6 sectors and a transitional period until 2025 is established for 9 other types of services. Belarus has set a transitional period until 2020 in the field of advertising. In the field of research work for all member states of the Union, a transitional period until 2020 is also set (Table 2). According to the EEC, 10% of the EAEU service sector are altogether exempt from the single market regime and another 30% are being liberalized in line with sectoral agendas under the responsibility of other Commission units, e.g. financial services, natural monopolies, energy and transport services. Secondly, the implementation of liberalization plans and the functioning of the single markets in the service sector is seriously hampered by the unwillingness of countries to mutually open their national services markets: a lack of implementation of the EEC’s decisions in the laws of the member states; non-application of the provisions of the Union by the competent national authorities and the absence of administrative cooperation between them in cases of administrative offenses; introduction of new mandatory requirements and restrictions. Thirdly, in this context the Eurasian Economic Commission and the authorized bodies of the member states have not been active enough in forming the single market for services. Despite the fact that the “Working Group on ensuring the functioning of the single market for services within the EAEU” was established in 2015, its first meeting was held only three years later. The only structural unit responsible for the single services market – the EEC department for entrepreneurship, services and investments – consists out of six clerks. There were also no research orders by the EEC on the single EAEU services market (out of 200 posted on the Commission website by December 2018).

Thus, liberalization plans for 11 further service sectors, which provide for the launch of a single market on various dates from 2020 to 2025, seem unlikely to be met either in time or in full.

Conclusion


Real advances in ensuring the unobstructed movement of services within the EAEU were most likely much lower (almost 17%) than the officially declared progress (55%). In fact, integration in the service sector, which is vital for building a modern and sustainable postindustrial economy, has suffered from a serious lack of attention by the Commission and the member states – both in manpower, funding, research and political will.

Table 1. Share of intra-Union services exports in total services exports of the EAEU member states (in %, 2014-2018)

2014 2015 2016 2017 2018
Armenia
Belarus 29.3% 26.9% 25.5% 28.5% 26.4%
Kazakhstan 32.4% 35.4% 29.2% 27.5% 24.1%
Kyrgyzstan 61.3% 64.3%
Russia 6.4% 8.5% 7.2% 7.3% 7.2%
EAEU 10.9% 13.0 11.9% 12.0% 13.5%

 Source: EEC Statistics Department and author’s calculations.

Table 2. EAEU service sector and permitted exemption (2018)

  Armenia Belarus Kazakhstan Kyrgyzstan Russia
Share of services in GDP composition (in %) 54.8% 51.1% 61.2% 54.2% 62.0%
Number of exemptions to the common services market in the EAEU 9 28 30 13 38
Number of horizontal exemptions to the common services market in the EAEU 4 8 11 12 12

Source: EEC (2019) Report on the implementation of the main areas of integration in the Eurasian Economic Union in 2018, CIA World Factbook. 2019. // https://www.cia.gov/library/publications/the-world-factbook/

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