25 Years of Eurasian Integration: Success or failure? (Part I)

Written by Dmitry Erokhin

On March 29th 1994, in the walls of Moscow State University, the President of Kazakhstan, Nursultan Nazarbayev, created the idea of a new association: the Eurasian Union (“Lecture by the President of Kazakhstan Nursultan Nazarbayev at Moscow State University,” n.d.). His concept was based on the countries’ common history, economic situations, close interrelation of cultures, and similar human aspirations. This initiative became the starting point for a new process called Eurasian integration.

On May 29th 2014, an agreement to establish the Eurasian Economic Union (EAEU) was signed by the leaders of Belarus, Kazakhstan and Russia in Astana, Kazakhstan (“The Treaty on the Eurasian Economic Union,” 2014). The Eurasian Economic Union was created as an international organization of regional economic integration with international legal personality.

The main goals of the Union are the creation of conditions for a stable development of member states’ economies in the interests of raising the living standards of their population; the strive to form a single market for goods, services, capital and labor resources within the Union; a comprehensive modernization, cooperation and an increase in competitiveness of these national economies in the global economy. Today members of the EAEU are Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.

In 2019, we thus celebrate two dates: 5 years since establishing the EAEU and 25 years of Eurasian integration.

May we speak of a successful union? What is the future of Eurasian integration? With the main idea being economic cooperation, to answer these questions we will look at economic indicators.

Eurasian countries had various trade agreements and unions before the EAEU was established, for example, the Union State Russia-Belarus, and the Eurasian Customs Union. However, we will only pay attention to the development of trade relations over the past 18 years among the current member states. This is because of the multiyear preparation which precedes the decision to join the Union. This approach helps to analyse the changes in the post-integration dynamics. I suggest that we look at the trade statistics of Belarus because its role as the integrator of integrations, initiated by the President of Belarus, Alexander Lukashenko, which is a long-term scenario for the development of interaction between the EAEU and the EU, makes it especially interesting to see how Belarus trades with both the EU and the EAEU and whether it fulfils its connectivity role.

The graph below shows the volume of Belarus’ foreign trade with Russia, Armenia, Kazakhstan, Kyrgyzstan, the EAEU as a whole, Ukraine, the EU as a whole (EU-28, except for Malta and Cyprus), China, and the United States, from 2000 to 2017. As you can see, Belarus’ foreign trade activities are dominated by its ties with Russia: trade with the EAEU follows an identical trend to Belarusian-Russian trade. The latter has been heavily affected by Russia’s economy. For example, the incline between 2005 to 2008 was due to the growth of Russian GDP at a rate of up to 8.5% per year; followed by the impact of the global economic crisis on the Russian economy in 2009. The Russian economy then grew by more than 4% per year in 2010 and 2011, and was further strengthened by the launch of the Common Economic Space and Russia’s accession to the WTO in 2012. However, 2013 saw structural problems, reduced investment activity, and high inflation, followed by socioeconomic crises and the collapse of the rouble against the U.S. dollar and the euro. This was caused by a rapid decline in global oil prices. Economic sanctions were then introduced against Russia in connection with the events in Ukraine, and a sharp decline in Russia’s revenues from oil and gas meant a decline in demand in the Russian economy as a whole in 2015 and 2016. The sanctions led to a new trend in trade between Russia and Belarus in the field of re-export. For example, unscrupulous Belarusian companies used to stick Belarusian labels on European fruits and vegetables banned for import into Russia and imported them into Russia, posing them as their own. For instance, this is how Belarus turned into the largest supplier of kiwis to Russia (“Over the year, Belarus has become the largest supplier of kiwis to Russia”, 2015).

It is also interesting to consider the foreign trade activities of Belarus with other nations and the EAEU countries separately, without taking into account Russia. Both graphs are presented below. It should be noted that among all trade partners of Belarus, the EAEU countries (excluding Russia) do not play the biggest role. Their trade is at approximately the same level as trade with the United States. Trade turnover of Belarus is higher with countries such as China, Ukraine and the European Union. The European Union ranks second among the major trade and economic partners of Belarus. At the same time, the EU market is the most significant direction of export of Belarusian products. In 2017, trade turnover between Belarus and the EU amounted to USD 14.23 billion (127.1% against 2016), Belarusian exports to the EU – USD 7.87 billion (139.3% against 2016) and imports – USD 6.36 billion (115.6% against 2016) (“Economic Cooperation,” n.d.).  The main trade partners of Belarus in the EU are the United Kingdom, the Netherlands, Germany, Poland, Lithuania, Latvia, Belgium, and Estonia.

Belarus’ trade relationship with the other EAEU countries, Armenia, Kazakhstan and Kyrgyzstan, shows an interesting dynamic: It is difficult to analyse the role of the EAEU only on the basis of foreign trade, but 2016 marks a period of recovery after years of decline, as we can see from the graph below. This could suggest that the ratification of the treaty establishing the Eurasian Economic Union in 2015 and completion of the membership process helped to stop further decline and contributed to growth.  

The global question is whether the Eurasian integration has had a positive or negative effect on trade. Furthermore, we should ask  if the results are merely due to side-effects of domestic economics (primarily Russian) and the world market. Has Eurasian integration successfully rebuilt the shared economic ties of the Soviet era? This requires both a deeper analysis and data from a longer period of time.

However, we can try to make a forecast  by highlighting current trends. There is a lot of evidence that suggests Eurasian integration has not been successfully implemented. The area’s freedom of movement does not function properly because various non-tariff restrictions are used, and sales and imports of goods can be blocked between the different EAEU territories. These countries also have little to offer each other in terms of technology, and the closed nature of the union could lead to stagnation. The EAEU may therefore become a market for outdated technologies and low-quality products. One of the Union’s key trading partners, China, has been unwilling to share their technologies, and only finances foreign projects which involve Chinese workers and materials, or an investment in real estate or trade.

It seems that one of the only ways the EAEU can move forward is by becoming closer with the European Union, the only trading partner that would likely offer new technologies. This would be the ideal way for the EAEU to become the engine of progress and economic growth on the continent.

Dmitry Erokhin, holds a B.Sc. in Economics at the University of Bonn, Germany. He is pursuing a M.Sc. in Economics at the Vienna University of Economics and Business, Austria. His current professional interest concerns Eurasian integration. Dmitry is a member of the German-Russian Youth Parliament Bonn-Kaliningrad, the European Society for Eurasian Cooperation (ESEC) and the Austrian Youth Press.

References

The Treaty on the Eurasian Economic Union. (2014, May 29). Retrieved February 18, 2019, from https://ria.ru/20140529/1009834276.html

Lecture by the President of Kazakhstan Nursultan Nazarbayev at Moscow State University. (n.d.). Retrieved February 18, 2019, from http://www.iaas.msu.ru/index.php/ru/novosti/980-lektsiya-prezidenta-kazakhstana-n-a-nazarbaeva-v-mgu

National Statistical Committee of the Republic of Belarus. (n.d.). Retrieved February 18, 2019, from http://www.belstat.gov.by/ofitsialnaya-statistika/makroekonomika-i-okruzhayushchaya-sreda/vneshnyaya-torgovlya_2/

(Own calculations based on the data)

Over the year, Belarus has become the largest supplier of kiwifruit to Russia. (2015, September 19). Retrieved April 05, 2019, from https://www.rbc.ru/business/19/09/2015/55fd10869a794737ddf37436.

Economic Cooperation. (n.d.). Retrieved April 05, 2019, from http://belgium.mfa.gov.by/en/eu/economic_cooperation.