Eurasian Economic Union: Between perception and reality

Image by Presidential Press and Information Office

What does the Eurasian Economic Union (EAEU) actually do? Somewhat surprisingly, it is not an easy question to answer, even though the EAEU is an organisation which is quite visible in both scholarly and policy debate. At the same time, many students of the EAEU do not study the organisation as such: they seem to be more interested in learning the place the Eurasian idea plays in the Russian foreign policy and rhetoric rather than understanding what exactly the EAEU as an international organisation is about.

The hopes and expectations the Russian leadership (as well as the Russian expert community and the Russian public) has had with respect to the EAEU may be very different from the reality of EAEU’s functioning, as – like with any other organisation – its work has had a number of unintended consequences, unpredicted by its designers. Importantly, Russia is not the only force shaping the EAEU. The position of Kazakhstan is equally important which, in many cases, leads the organisation in a different direction from that intended by Russia.

Results

In a nutshell, as of today, the EAEU is primarily a limited customs union. As such, it achieved three goals: harmonised the external customs tariffs, abolished the internal customs borders, and transferred the decision-making about the tariffs to the Union level instead of individual member countries. Being a customs union (even a limited one) is already a substantial achievement if one compares the EAEU with other regional organisations worldwide: while the EAEU falls short in comparison with the EU, so does any other regional organisation in the world without an exception, and for most of non-European integration projects even a customs union appears to be a goal difficult to achieve.

In 2010, when the Customs Union of Russia, Belarus and Kazakhstan (the EAEU’s predecessor) was established, it had a very high level of customs duties’ harmonisation, exceeding 90 per cent. This changed after Kazakhstan joined the WTO in 2015. As part of the negotiations, it agreed to reduce the tariffs for a large set of imports without consulting other partners at the EAEU. As a result, only about 60 per cent of the tariffs are harmonised and for that reason one can call the EAEU only a limited customs union.

In addition to trade, the EAEU managed to abolish internal constraints on labour mobility and capital movement. In terms of labour, for the three founding members of the EAEU – Russia, Belarus and Kazakhstan – the issue is relatively unimportant since migration between these countries is very small. For Armenia and Kyrgyzstan the situation is different: for these countries, labour migration to Russia is crucial and so are the benefits of free movement of people within the EAEU. Still, the biggest sources of emigration in Eurasia – Uzbekistan and Tajikistan – are outside of the EAEU and are not covered by its provisions.

The EAEU treaty also envisioned stepwise integration of a number of key markets – from medical products and electricity to oil and financial services. Many of these plans appear to be unrealistic: the EAEU member states find it extremely difficult to reach consensus in these areas. In some cases (like that of medical products), the EAEU managed to achieve progress, but typically at the expense of massive compromises on the part of member countries and hence established a very weak regulatory framework.

The EAEU includes a number of governing bodies (the Court of the EAEU, the Eurasian Economic Commission) with certain elements of supranationality – the decisions should be made by EAEU bureaucrats rather than by political representatives of individual countries. However, the extent to which the EAEU actually managed to create supranational governance structures, is very limited. Here, the main problem is not even the design of the institutions themselves, but the behavior of individual bureaucrats who accept positions in the supranational institutions.

Four out of five members of the EAEU (Russia, Kazakhstan, Belarus and Armenia) are authoritarian countries and their bureaucracies are trained in showing full and unconditional loyalty to the political leadership. They do not change this behavior after they are appointed to EAEU bodies. As a result, in case of even minor disagreements, bureaucrats prefer not to take any risk and shift the decisions to the political level (preferably that of the heads of states) rather than to make decisions themselves.

Problems

As a customs union, the EAEU is potentially able to boost trade across member countries and thus to encourage economic growth. However, the EAEU was set up at the least favorable moment for achieving these goals, that is amidst the period of Russian economic stagnation, which makes cooperation with this country not really attractive. This stagnation is driven by fundamental factors the EAEU is unlikely to change: poor protection of property rights, dominance of security concerns in economic policy, high corruption etc. The EAEU’s benefits for member states are incomparable with these deep problems emanating from the Russian economy.

There are also important problems associated with the design of the EAEU itself. First, EAEU still has many features of a protectionist union, imposing high tariffs to limit access of foreign competitors to domestic markets. This type of protectionism, while serves the goals of domestic lobbyists in Belarus and in Russia, is incompatible with the goal of economic modernisation. The design of the customs union (where customs duties are set at the union level) limits individual country’s ability to open up their economy for global trade even if they wanted to.

Second, the EAEU so far has not solved the deep problem of non-tariff barriers. To access the market of one of the EAEU countries, goods from another country still have to pass numerous bureaucratic hurdles. Finally, to benefit from international integration, EAEU countries have to change domestically: they need to reduce the extent of the penetration of their economies by the state (which is the dominant actor in Belarus and very important in Russia). This has not happened so far and it is unlikely to change.

But for many observers, the main problem of the EAEU is not an economic one, but of political nature: the EAEU is seen as a tool consolidating and strengthening authoritarianism in Eurasia. Here, however, doubts are in order. The EAEU as such is (due to the vehement position of Kazakhstan) a purely non-political entity: there are no references to any ideology in the EAEU documents, no political institutions like a common citizenship or parliament and no political goals. This does not mean that the autocratic regimes of the member states cannot use the EAEU against domestic opposition: since the idea of Eurasian regionalism is very popular in some of the EAEU countries, the EAEU could, for example, increase popularity of the incumbents. But these effects are limited and indirect.

Similarly, the idea that the EAEU will increase Russian leverage over the member states is not really justified. There have been numerous examples of the EAEU bureaucracy rejecting the Russian proposals and suggestions. This is unsurprising. Russia, for ideological reasons, is interested in maintaining the EAEU. However, to keep the organisation alive, it needs to make concessions to other countries. As a result, the actual decisions of the EAEU are less biased towards Russian interests than one would expect.

This, of course, does not hold for key, strategic objectives of the Russian leadership: e.g., in case of counter-sanctions against the EU Russia does not hesitate to act regardless of the position of the EAEU members. However, for many lower level, technical (but economically important) decisions, Russia seems to be willing to accept compromises with smaller countries. This, however, could change in the years to come.

Outlook

What is going to happen to the EAEU in the future? On the one hand, the organisation’s collapse or full sliding into purely rhetorical structure, where member states systematically disregard their commitments, appears to be unlikely: the extent to which the member states changed their regulation and adapted their bureaucracies to the EAEU is already high enough to make them unwilling to dissolve the EAEU altogether.

On the other hand, however, any progress of the EAEU towards higher levels of economic integration is unlikely as well. There are too many disagreements between member countries and besides, authoritarian regimes generally have low tolerance for advanced regional integration schemes limiting the power of their leaders.

There is, however, a further important trend one has to take into account. Four years ago, in 2013-2014, Russian leadership considered the EAEU as one of its priority projects (thus, for example, trying to promote the idea of a direct dialogue between the EAEU and the EU). This seems to have changed. Today, Russian leadership has much more powerful tools to extract its legitimacy from than the Eurasian integration idea and is focused on high-stakes international issues (like the Syrian conflict). The EAEU, therefore, seems to fall out of the Kremlin’s attention span.

The appointment of Dmitriy Bel’yaninov to the CEO of the Eurasian Development Bank (another regional integration institution connected to the EAEU) is a case in point. The former head of the Russian customs left his office after a very high-profile corruption scandal, including a search of his house by the Russian law enforcement. Russia seems to return to the pattern it used in the 1990s: using the Eurasian regional organisations as a place of exile for politicians, who – for some reason – do not fit in the political and bureaucratic situation in Moscow.

If that is the case, one should expect Russia to be more willing to unilaterally disregard the EAEU decisions and the compromises within the EAEU to become even tougher. The window of opportunity for the advancement of the Eurasian regionalism, which opened in the early 2010s, seems to be rapidly closing.

Alexander Libman is Professor of Social Sciences and Eastern European Studies at the Ludwig Maximilians University of Munich. His research focuses on the Eurasian regional organizations, Russian sub-national politics, and the role of historical factors in the contemporary political development in Eurasia. His most recent book is Re-Evaluating Regional Organizations: Behind the Smokescreen of Official Mandates (Palgrave MacMillan, 2017, with Evgeny Vinokurov).

Armenia, belarus, EAEU, Kazakhstan, Russia, the Eurasian Economic Union