What is the meaning and significance of the Eurasian integration project – the EIP? What is the EIP? Is it a purely economic project, or a political one, but using economic leverage? Or maybe this is a disguised attempt to restore the USSR, which Moscow is suspected of in the West and other countries?
The beginning of the implementation of the interstate Eurasian economic integration project dates back to 2010, when the Customs Union, the CU, established by Russia, Kazakhstan, and Belarus officially began to operate. In 2012, it formed the Common Economic Space – the CES, within the territory of the participating countries, and in January 2015 it entered the next organizational stage, namely, the creation of a full-fledged economic union – the Eurasian Economic Union – EAEU.
These actions of the new sovereign states that emerged after the collapse of the USSR in overcoming mutual differences and establishing multilateral economic cooperation were not the first in the post-Soviet period, but all previous attempts proved untenable. At best, the established unities, communities, associations and forums served as negotiation platforms. They did not have supranational authority, and their decisions were perceived as recommendations that weren’t binding; there were no mechanisms for monitoring the implementation of those decisions.
What distinguishes the Eurasian integration project from previous attempts to establish interstate economic cooperation on the territory of the former USSR, what is the meaning and significance of Eurasian integration and what are not only the formally stated but also large-scale strategic goals and objectives of this project?
According to the official documents, the initiating countries of the EIP direct its activities towards the creation of an interstate integrated economic association, whose members will strive to ensure the economic progress of their countries through joint actions aimed at solving the tasks of economic development, comprehensive modernization of production and enhancing the competitiveness of national economies at the global level. The tasks of the EIP include the implementation of re-industrialization of the member countries and the creation of a common economic space, which should ensure the free movement of goods, services, capital, and labor.
To achieve these milestones, during the successive stages of the formation of the EIP agreements were worked out and refined to form common principles for the functioning of the national economies of the participating countries and ensure their effective interaction, coordination of programs and specific measures to support individual industries, as well as creating the necessary conditions to increase domestic economic stability and resistance to external influences, up to the implementation of the policy of indirect protectionism for the period of economic modernization – including credit and financial support for individual industries, the implementation of a differentiated tax policy, the introduction of state orders for products of local origin.
The decision to transfer part of their sovereign powers to supranational bodies — first, the Customs Union Commission and then the Eurasian Economic Commission — became a crucial component of these agreements.
Strategic goals of the Eurasian integration project
As follows from the above, the Eurasian integration project does not pursue political, and especially military-political goals. It also does not set the task of restoring the USSR. At the same time, reducing the objectives of the EIP only to purely economic aspects does not allow to fully appreciate its role and importance in ensuring a wide range of strategic interests of Russia and its partners in EIP, which is to stimulate the processes of interstate cooperation of post-Soviet countries, thereby fundamentally changing the geostrategic significance of the post-Soviet space and turning it into one of the most important points of influence in the modern world.
In other words, the Eurasian integration project was originally conceived as a geostrategic in its essence, and the solution of the tasks set before it was intended to ensure the national security of Russia and its partners in the EIP, their successful functioning in the modern world, in which regional and global projects that are also formally declared as economic, such as, for example, the Silk Road Economic Belt, are being implemented by the major players, which in turn can seriously influence national interests of Russia.
Accordingly, the questions of “to what extent and how well the goals facing the EIP are achieved or not” are not scholastic. Only by giving the right answers can one evaluate the effectiveness of the policy aimed at shaping the EIP, and its role in ensuring Russia’s strategic interests.
Another confirmation of the geo-strategic nature of the Eurasian integration project was heard at the XX International Economic Forum in St. Petersburg in June 2016, when V.Putin announced the idea of creating a large Eurasian partnership. It was noted that this issue was discussed and received support at a meeting of the leaders of the EAEU member countries – the Russian Federation, Belarus, Kazakhstan, Armenia, Kyrgyzstan, a month earlier in Astana.
The new Foreign Policy Concept of the Russian Federation, approved at the end of November 2016, states that in the conditions of the accumulation of crisis manifestations in the global economy, the implementation of regional integration serves to strengthen the competitiveness, security, financial and economic stability of the participating countries. At the same time, Russia, the Concept emphasizes, considers the key task to deepen and expand integration within the Eurasian Economic Union – the EAEU, created on the basis of universal integration principles, that is able to play an important role in harmonizing the integration processes in the European and Eurasian regions.
Thus, in essence, the modernized concept of the “heartland” was proposed, which affirmed the strategic importance of Russia as a great continental power and its leading role together with its partners in the EIP on the Eurasian continent.
The initial period of the Eurasian integration project
Of course, the idea of creating a large Eurasian partnership needs further concretization and discussion with stakeholders on its forms, methods, and deadlines for its implementation, which will take considerable time. As for the current Eurasian integration project launched in 2010 with the participation of Russia, Kazakhstan, Belarus, and other post-Soviet countries, it should be emphasized that its initial stage, which occurred in 2010-2012, was generally quite successful.
It was during these years that the rapid growth rates of the mutual commodity turnover of its participants were observed in comparison with the general rates of their foreign trade. A single customs territory was created with a single customs code, customs tariff and other attributes of a full-fledged Customs Union (CU) – which, by the way, only half of the 17 customs unions currently operating in the world were able to realize; the process of mutual investments has intensified; a single labor market began to take shape due to the development of legislation. The achievement of a number of legislative and legal agreements between the CU / CES participants contributed to the formation of a unified policy on the employment and dismissal of labor migrants from the member countries of the integration association, their medical support and social insurance, taxation, etc. The development of these processes did not pass by the attention of other countries of the post-Soviet space, which showed undisguised interest in the already achieved and expected results of the Eurasian integration project.
At the same time, these results served as a stimulus for enhancing the processes of trade and economic cooperation between all post-Soviet countries, prompting the adoption of a number of practical measures and legislative acts by their governments and parliaments.
Among the most important was the decision of the CIS countries to create a Free Trade Zone of the CIS in 2011. A number of post-Soviet countries discussed the forms of further cooperation with the CU / CES, up to considering the possibility of obtaining full membership in these organizations. A direct consequence of the positive trends in the implementation of the EIP was the signing of the Treaty on the Eurasian Economic Union in May 2014 and the inclusion of Armenia and Kyrgyzstan into the EAEU.
Crisis manifestations, challenges, and threats
However, since the second half of 2013 and, especially, in subsequent years, the process of implementing the EIP was noticeably complicated as a result of the accumulation of negative internal and external factors. First, a number of economic contradictions between the project participants weren’t eliminated completely or weren’t eliminated at all. This resulted in quite long terms for the final formation of common markets for electricity, gas, oil and petroleum products – in some cases – not earlier than 2025, the lack of agreement on a common monetary policy and the fact that a number of provisions of the Treaty on the EAEU were more recommendatory than binding.
The negative impact on the course of Eurasian integration was also caused by the imperfection of the legal framework, the lack of normal activity of the courts in dealing with disputes and conflicts between participants in business transactions, as well as the preservation of a large number of various exemptions and restrictions on mutual trade of goods and services.
Secondly, the implementation of Eurasian integration took place in adverse external economic conditions – essentially, in the context of the global economic recession. Due to the general deterioration of the world markets for raw materials and energy, members of the Eurasian integration project, acting mainly as suppliers of energy resources, various types of raw materials and semi-finished products, were exposed to a serious negative impact of the crisis in the global economy and finance that affected their economic development, the nature of their participation in the international division of labor and in world trade, the dynamics of their export revenues.
Thirdly, the negative impact of the crisis in Ukraine, Western economic sanctions against the Russian Federation and a serious weakening of the Russian ruble has had a negative impact on the course of Eurasian integration. They caused damage not only to the economy of Russia but also to its partners in Eurasian integration, which are closely tied to it economically. In particular, this led to a slowdown or fall in the rate of economic growth in Kazakhstan and Belarus, the devaluation of their national currencies and a decrease in the standard of living of the population.
As a result, many of the positive trends in the development of Eurasian integration that existed at its initial stage either slowed down significantly or turned into negative ones. Apparent evidence of this was the drop in the volume of mutual trade of the members of the EAEU in 2013-2015 by 33%. Although it was less than the fall in their total foreign trade turnover which amounted to more than 38% over the same period. There has been a downward trend in the dynamics of accumulated direct investments of the EAEU countries. The devaluation of national currencies had a particularly negative impact on the volume of accumulated Russian investments in Kazakhstan and Belarus.
This development of events had serious negative consequences for the whole course of the Eurasian integration process, putting at risk both the implementation of current plans and the achievement of the strategic goals of the EIP as a whole.
Summing up the results of the functioning of the Eurasian integration project, it should be recognized that they turned out to be rather contradictory and far from the expected ones. At the same time, despite all the problems and challenges of internal and external nature, intentions to continue the implementation of the Eurasian integration project have remained within the EAEU.
Prospective tasks of the Eurasian integration project
However, this does not at all exclude the need to find solutions aimed at overcoming the existing challenges, ensuring the development and deepening of the Eurasian economic integration. Therefore, in a complex and sometimes obviously negative environment in which the EAEU is now operating, its participants face the urgent task of developing the most effective model of trade, financial and investment interaction and its implementation in the shortest possible time. Being aimed at solving specific problems of economic development of the members of the EAEU, it requires a significant improvement in the coordination of their actions at the macroeconomic level, the further development of the integration trends that continue to operate in the post-Soviet space. To this end, the members of the EAEU will have to significantly intensify efforts to improve the legal framework of interaction; continue to stimulate mutual trade, strengthen the common customs space; accelerate the formation of common energy markets, as well as ensure the implementation of a coherent industrial policy.
It is necessary to establish effective cooperation within the EAEU on financial and banking issues, to mobilize not only public but also private funds for investment purposes. A transition to mutual payments in national currencies can play a positive role in solving the common monetary and financial problems of the members of the EAEU. In the coming years, the interest of all the EAEU countries in the modernization of key sectors of the national economy should play a special role in the Eurasian integration process.
The achievement of these goals can be promoted by deepening sectoral cooperation between members of the EAEU, pursuing a coordinated policy aimed at replacing products from the third countries on the local market, creating joint industrial complexes, and forming sectoral specialization of the EAEU member countries.
Finally, an important area of Eurasian economic cooperation can be the activation of mutually beneficial ties in the service sector, including construction, financial and banking, transport, information.
Such actions should result in the development of the domestic market of the EAEU member countries, stimulation of local business activity, reduction of unemployment and growth in the purchasing power of the population, which fully meets Russia’s strategic interests.
Preservation of integration tendencies
The preservation, albeit in a weakened form, of integration tendencies in the post-Soviet space, acts in favor of further positive development of Eurasian integration. This is evidenced by the fact that the share of mutual trade of the EAEU members in the total volume of their foreign trade continued to grow, having increased by the end of 2016 from 12.3 to 14.2%, compared to 2014. The commodity structure of their mutual trade due to a larger share of goods with a high degree of processing in it remains relatively more efficient in comparison with the overall foreign trade indicators of the EAEU member countries. The share of machinery, equipment, and vehicles in mutual trade on average ranges from 16 to 18% – 17.5% in 2016, while its share in the total trade of the EAEU member states with third countries does not exceed 4.2% .
The continuation of the investment cooperation of the EAEU countries is evidenced, in particular, by the fact that in recent years they have created more than 10 thousand joint ventures. The main volume – 80% of mutual direct investments still falls on Russia, most of the direct investments (DI), which accounts for the traditional sectors of its specialization – the fuel complex and non-ferrous metallurgy. At the same time, there is an increase in DI in the transport and agro-industrial complexes, the communications and IT sectors, the financial sector and infrastructure networks.
It is important to emphasize that the investment interaction of the EAEU countries is by no means a one-sided Russian investment expansion, since with the remaining dominance of Russian companies, such as Gazprom, LUKOIL, VimpelCom, VTB Group, there is a slow but steady increase in the share of non-Russian direct investment in the economy of post-Soviet countries. According to the Eurasian Development Bank, in the coming years, the structure of investment flows in the post-Soviet space will be largely determined by the integration processes within the EAEU.
Humanitarian relations were preserved in their main aspects not only between the members of the EAEU, but also other member states of the EIP, including the migration of the population. Thus, labor migration from the countries of Central Asia and the Caucasus to Russia, which was significantly reduced in the first half of 2015, stabilized and began to return to their previous level during the second half of the year. Migratory intentions reflected the desire to stay in Russia even on less favorable material conditions or come to Russia not only for the sake of earnings, but also to study or for permanent residence.
Prospects for increasing the number of participants in the EIP
Although the proposed measures to overcome the encountered difficulties and the options for responding to the existing challenges deserve the closest attention and the most effective implementation, they may not be sufficient to fundamentally or at least significantly change the course of Eurasian integration in a positive direction and return EAEU on the trajectory of sustainable economic growth.
Therefore, it seems advisable to supplement them with a more extensive formulation and implementation of the strategic objectives of the EIP and methods for their implementation. This should be facilitated by a focused and active approach to the two interrelated strategic aspects of the EIP, namely, the rational solution of the problem of expanding the number of its direct participants and the implementation of effective trade and economic cooperation with third countries.
In political circles and in the expert community of the Russian Federation there is a perception that the expansion of the EAEU at the expense of the new post-Soviet countries should be encouraged, making them interested in granting a status similar to the status of its existing members. It is believed that following these recommendations meets the strategic interests of Russia, not only contributing to solving the tasks of the economic development of EIP participants, but also stimulating the growing popularity of Eurasian integration ideas and, thereby, consolidating post-Soviet countries around Russia.
This argument, however, needs substantial clarification. On the one hand, even the existing opportunities for economic cooperation are far from being fully realized – so, in 2016, the previously signed Russian-Kyrgyz agreement on the construction of the Kambarata hydropower station and the Upper Naryn cascade of hydropower plants was canceled. On the other hand, the circle of real applicants from among the post-Soviet countries for joining the EAEU as its full members is close to exhaustion. Not to mention the fact that the ruling circles of such states as Ukraine do not intend in the foreseeable future to consider the possibility of normalizing relations with the EAEU.
Negotiations with Tajikistan, which was considered to be the most likely candidate for joining the EAEU as a full member, demonstrated that Dushanbe was not ready to make such a decision. This is due, in particular, to the need to harmonize mutual interests and claims of the parties, as well as to overcome the existing contradictions when Tajikistan joins the EAEU, which will require, apparently, quite a long time. In addition, Dushanbe has yet to make a number of changes to national legislation, ensuring its compatibility with the treaties and agreements that govern relations between the members of the EAEU.
As for the other post-Soviet countries, for example, Azerbaijan, Turkmenistan, and Uzbekistan do not hide their negative attitude towards the establishment of trade and economic relations with members of the EAEU in a multilateral format. However, the above should not be interpreted as a reason for refusing to involve these countries in the Eurasian integration process in the forms acceptable to them.
Moreover, it would be advisable to continue the negotiation process on relations with those of them who wish to strengthen business ties with the EAEU, but for some reason are not ready to discuss the issue of formal membership in this organization, in order to search for other institutional forms of deepening mutual cooperation.
The results of the presidential elections in Moldova in November 2016, where supporters of the victorious opposition leader, I. Dodon, unequivocally supported his intention to develop cooperation with the EAEU, convincingly support this approach. Intentions in favor of strengthening economic ties with Russia and its partners in the EAEU become more prominent in Georgia.
Reflecting the degree of development and intensity of economic cooperation between the EAEU members and these countries, one could suggest introducing the status of a “dialogue partner” or “associate member”, which would determine the scope and nature of such cooperation and fix the objective possibilities and limits of economic convergence of such countries with the EAEU at this historical stage.
At the same time, it is necessary to avoid raising the question about the conditions of cooperation on the principle of “or-or” too harshly, as it was with Ukraine, which at one time proposed a formula for interaction in the “3+1” format. Having tried to put pressure on Kiev, supporters of the “purity” of the conditions of Eurasian economic cooperation actually played into the hands of the forces that accused Russia of imperial ambitions.
Large Eurasian Partnership
At the same time, in order to overcome existing constraints and obstacles on the path of Eurasian integration, members of the EAEU will be faced with the task of creating large Eurasian partnership through the development of trade, investment, interbank and other forms of economic cooperation, as well as establishing maximum mobilization of domestic resources and a carefully weighted policy of developing interstate cooperation with the post-Soviet countries. These include the creation of joint free trade zones with a number of third countries and international organizations, such as the SCO or ASEAN, who have expressed their willingness to cooperate with the EAEU.
In turn, the expansion of sales markets for products produced by the EAEU countries and the promotion of commodity and geographical diversification of their trade and economic ties with third countries will not only increase foreign currency earnings but also expand the possibilities for developing national production by more actively integrating into global production sales chains.
Obviously, in this case, the adoption of specific decisions on the issues discussed should be fully justified and contain a balanced critical assessment of the strategic interests of potential partners of the EAEU, not only economic but also political, which they intend to pursue within the cooperation with the EAEU.
Summing up the analysis of the implementation of the EIP, it should be emphasized that, despite many difficulties and challenges of internal and external nature, some progress has been made in its implementation, which undoubtedly meets Russia’s strategic interests. At the same time, the observed lag in the pace and timing of the implementation of a number of specific measures of multilateral economic cooperation compared to what was previously agreed causes concern and is being actively used by opponents of the EIP to discredit it. The search for effective ways to overcome these negative phenomena and trends remains one of the central objectives of Russia’s macroeconomic policy.