The Eurasian Customs Union: background and origins

imagesThe significance of the ECU can be more fully understood  through a broad overview of previous integration initiatives, which illustrate the patterns of continuity and, most  importantly, change. The first and best-known initiative was the Commonwealth of Independent States (CIS). When it was set up in December 1991 it was more a vehicle for channelling the orderly disintegration of the Soviet Union than for a fresh engagement among its former constituents.

Nonetheless, the focus soon shifted to bringing together the 12 newly independent republics around a new-style economic project. In 1993 Russia proposed a full-blown Economic Union loosely modelled on the EU model, to be achieved in progressive stages. An agreement on setting up a free trade area (as a first stage in this process) was signed in 1994.

In early October 2011, the Russian Prime Minister Vladimir Putin, who later became the country’s president, wrote a now-famous newspaper article “A New Integration Project for Eurasia: A Future That is Born Today”. In this pre-electoral piece (it was already known that Putin, not Medvedev, would run for president on behalf of the United Russia party), Russia’s strongman proposed the creation of a vast economic bloc known as the Eurasian Union which, in Mr. Putin’s view, would enable its member states to “become leaders of global growth and civilized progress, and to attain success and prosperity”.

This new entity of regional integration in the post-Soviet space should build not only on the experience of the Commonwealth of Independent States (CIS), but also on its two successors: the Eurasian Economic Community (EurAsEc) created in 2000 and the Customs Union between Russia, Kazakhstan, and Belarus formalized ten years later.

The Customs Union of Russia, Belarus and Kazakhstan is the first successful example in regional economic integration between countries of the former Soviet Union, according to EBRD economists.

The new survey has assessed early evidence of what the new Customs Union, created within the Eurasian Economic Community, has achieved in the two years since the introduction of common external tariffs. Belarus, Kazakhstan and Russia agreed to establish the Customs Union in November 2009. While many benefits of the union remain to be seen, it is clear that common tariffs and reduced non-tariff barriers are affecting trade both internally, between the three members, and externally with the rest of the world.

EBRD economists believe that previous attempts towards economic integration in the post-Soviet space, such as CIS free-trade agreement, created little actual integration.  However, the Customs Union has in fact introduced mechanisms of trade integration, particularly by lowering non-tariff trade barriers. Potentially the union can bring further benefits such as improved cross-border infrastructure and strengthened institutions.

Since the creation of the union, trade among the three countries has doubled. The increase has been caused mainly by post-crisis recovery, but also by reducing non-tariff barriers and to some extent by common tariffs.

Non-tariff barriers – for example, the time that it takes to clear goods at borders – have traditionally been a major trade obstacle in these countries. The report shows that such non-tariff barriers are much more important for trade than more traditional barriers, such as import duties.

The structure of exports from Belarus, Kazakhstan and Russia also suggests that regional economic integration has the potential to act as a springboard for exports to the rest of the world. Higher-value-added goods first exported within the regional bloc are likely to later be exported to other destinations.

Some experts, like Nikolas K. Gvosdev writing for the National Interest, believe that by promoting its Eurasian Union agenda, Moscow is trying to rebuild a new Russian empire, namely when he says that “Putin would like to see more of the old Soviet (and Imperial-era) linkages restored, with trade, resources and labor flowing between Russia and its neighbors”. Others assert, instead, that Russia’s policy towards its neighbors will be dramatically different, with the Russian-Ukrainian political scientist Andrey Okara speaking of a “trade quasi-empire”, based on each country’s acceptance of Moscow’s dominance and on the absence of other alternatives, clearly in the Kremlin’s favor.

 

Bibliography:

1)    “Russia’s Eurasian Union: A bid for Hegemony?” by Georgiy Voloshin. “Eurasian Review”, September 2012

2)    “Customs Union of Russia” by Svetlana Pryanko. European Bank, November 2012

3)    Chatham House, briefing paper  “Russia: the Eurasian Union and the EU” by Kataryna Wolczuk. August 2012

4)    “Trade within the Russia – Belarus – Kazakhstan customs union”. Ebrd Blog

5)    Belarusdigest: “WTO vs Customs Union: Russia decides”  by Darya Firsava. January 2012