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EAEU – Another False Start

EAEU – Another False Start
Leonid Zlotnikov

The Eurasian Economic Union could be compared to "The Andean Community", “The West African Economic and Monetary Union” or “The East African Community”.

On March 24th, Lukashenka declared: "We have no way back. We need to improve The Eurasian Economic Union; we need to create an alliance that is not worse than the EU. Otherwise, we will look like chatterboxes in front of our people."

However, we do not need to wait. It would be enough just to look back, evaluate the current state, and then realise that nothing has changed.

The starting point for the creation of the EAEU is the speech of the President of Kazakhstan, Nazarbayev, in 1994, in front of the Moscow State University students. He suggested integration paradigm of the creation of the Eurasian Economic Union. In 1995, the three countries (Belarus, Kazakhstan and the Russian Federation) signed the Customs Union (CU) Agreement.

In 2000, the five countries signed an agreement on establishment of The Eurasian Economic Community (EAEC or EurAsEC). In 2003, the presidents of Belarus, Russia, Kazakhstan and Ukraine signed an agreement on the formation of The Eurasian Economic Space (Single Economic Space). However, all of these agreements mentioned above - false starts.

New cycle of agreements on the integration began in 2009. Another Custom Union was hastily organized between Belarus, Russia and Kazakhstan in 2010-2011. However, remained "significant differences" in national legislation impeded the functioning of the organization. For example, the rates of custom duties could be determined by the national legislation of the CU Member States. Agreement on mutual recognition of certificates of origin was not always implemented, which made movement of goods between the CU countries difficult and expensive. The expert community viewed this Custom Union somewhat ambiguously, as very similar Customs Unions (Belarus - Russia - Kazakhstan) already existed and were implemented only partially.

The Eurasian Economic Space and The Eurasian Economic Commission (EEC), as allegedly supranational body to regulate The Eurasian Economic Space, began functioning since 2012. Finally, in 2015, the Treaty on the Eurasian Economic Union came into force. In 2015-2016, the Union was joined by Armenia and Kyrgyzstan. However, this does not mean that since 2012 the integration process has passed all the stages up to the economic union.

To clarify this point to a reader, we shall remind that integration process usually takes several steps in an appropriate sequence. The lowest degree of integration - a free trade area (FTA), when trading in goods and services between countries is carried out free of duty (except for agricultural goods, as a rule). This step is followed by the formation of the Customs Union, when the CU member countries introduce a common customs tariff (fee) and a single system of tariff regulation for third countries.

The next stage of the integration is the Common Market, where countries agree that not only goods and services but also factors of production (capital and labour) can be moved freely between them. At this stage there is already a high level of inter-state co-ordination of economic policy (for the EU, for example, it is the European Council of Heads of State and Government, the Council of Ministers of the EU and the General Secretariat of the Council of the European Union). The highest level of the integration is the Economic Union, when, apart from the functions of the previous stages, overall macroeconomic policy and financial legislation (currency, monetary and fiscal policies) is unified for all member states.

The announcement of the EAEU creation as of January 2015 does not mean that previous stages of integration have been completed. The EAEU Treaty has been based on the results of the contractual-legal framework improvements in the Custom Union and Eurasian Economic Space. This means that there is still a need to complete fully the process of the Customs Union creation.

Today, one of custom union problems is the presence of the numerous non-tariff barriers of trade between the CU countries. Non-tariff barriers are sanitary standards, certificates, restrictions, institute special importers, subsidies, etc. They increase the value of exported goods inside the union by 15-30% (Vinokurov E, Tsukarev T., «Agenda for the EEU Economy», Eurasian integration, 2015, №4). Entrepreneurs face also high export barriers to the Belarusian market (e.g. for the chemical and agricultural products). A single market for the energy resources is not established either. Its formation, and hence the formation of the CU, is planned to be completed only in 2025.

Kazakhstan has made a big gap in the common market space of the union. In the end of 2015, Kazakhstan entered the WTO. Import duties applied since December 2015 for the 3500 goods on the territory of the country have been lower than the rates of duties of the Common Customs Tariff of the EAEU. The weighted average rate of Kazakhstan decreased from 10.4% to 6.5% in the EAEU. The highest import tariffs have been set for the machinery and food products. Kazakhstan has committed to liberalize the work conditions in the domestic market. As a result, after 5 years, foreign banks will be eligible to open branches and conduct banking business in the country. The opening of foreign banks branches (what Russia is not going to do) makes a big gap in the future common economic space.

In order to retain its membership in both associations, Kazakhstan is obliged to prevent re-export of products imported at lower import duties to other countries of the EAEU. To this end, it is planned to create a special accounting system based on electronic invoicing, the real-time data of which will be exchanged by the competent authorities of the EAEU. Sometime earlier, in 2014, Russia actually harmed the CU as well, declaring the anti-Western sanctions without coordinating them with other union members.

These examples show how far we are from the creation of the customs union, not to mention the economic union.

***

The initiators of the EAEU want to replicate the success of EU integration. However, the Eurasian Economic Union awaits the fate of other, already forgotten, integration associations, that also tried to replicate the experience of the European Union. Examples might include "The Andean Community", exotic “The West African Economic and Monetary Union” or “The East African Community”.

Scientists have already described the causes of failure in attempts of adopting the EU experience. While EU is a community of democratic countries with market economies, EAEU, in contrast, mainly consists of non-democratic countries:

"Accordingly, the search for compromise solutions to problems in Eurasia is extremely difficult. Particularly important problem is the role of non-democratic states, which make up the majority of the Eurasian continent… Due to the nature of the political system, it is much more difficult in non-democratic countries to implement integration projects than in democracies. One of the reasons is that non-democracies are less ready to make even limited concessions to sovereignty at the expense of international agreements, another reason is low "authenticity" of their commitments" (Libman A., Vinokurov E.,"Eurasian continental integration", St. Petersburg, 2012. p. 68).

The governing body of the EAEU is the Eurasian Economic Community (EAEC or EurAsEC). At all levels of the management hierarchy in the EAEC decisions are taken by consensus, including the Interstate Council, which is composed of the Heads of State and Government of the member states. There is also Court of the Eurasian Economic Community, which may establish a violation, but cannot force a country to implement its decisions. It can only file complaints of the offending country to the Interstate Council. After, there is a consensus of presidents. Counties cannot force each other to execute court decisions. Decision-making posts at all levels of the EAEC are represented by members from each country of the Union on a parity basis for 4 years. After this term, same candidates can be represented again.

In general, there are all the conditions created which maintain individual country's sovereignty in EAEU. If EU had such a management system, it would have collapsed long time ago. There, nation states are prevented from influencing their citizens that make decision in the European Commission.

There are several reasons why the EAEU may not be more durable than its predecessors. However, the most important factor of its frailty is its management system based on the principles of consensus:

«The problem is that undemocratic states often turn formal integration agreements ... into the «support tools» to maintain friendly regimes», … as it took place in the post-Soviet space for almost two decades " (ibid).

The most problematic country for EAEU integration is Belarus, «It is clear that the promotion of economic relations with Belarus beyond simple trade looks very difficult, even within the framework of the Customs Union. Yet, there are lot of problems and work to do even with regards to the trade relationship... » (Ivanter A. Lebed, «Cancer and Pike vs. Dragon», Union-report.ru)

Lukashenka, most probably will not renounce sovereignty of the country, for example, for the sake of a common currency in the EAEU. Then, there will be no economic union.

And his grim prediction will come true.

Leonid Zlotnikov, specially for charter97.org

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