Prosperity Beyond Borders Eurasian Integration to Advance Global Success

By Martin Sieff

shutterstock_128976920Are the Eurasian Economic Community (EurAsEC), the Common Economic Space (CES) and the Customs Union (CU) of Russia, Kazakhstan and Belarus a retreat to the past? Or do they form a bold step into the future? Does Eurasian economic integration mean regression for Russia, Kazakhstan and their neighbors into the protectionism and tightly state-regulated systems of the Soviet era? Or is integration part of a more broadly thinking paradigm to create a prosperous new Eurasia open to global investment and trade? Kazakhstan’s leaders and economists have no doubt. They see an integrated Eurasian economic community as central to making Kazakhstan the trade, investment and communications hub of Eurasia.

Under Kazakhstan’s multi-vector foreign policy, the country has developed positive relations with Russia to the north, China and the other major industrial nations of Asia to the east, Turkey, Iran and the nations of the Arab world to the south-west and the 27-nation European Union (especially Germany and France) and the United States to the west. The country has also attracted $160 billion in foreign direct investment and is expanding its stock market. Almaty, the country’s largest city, is establishing itself as Central Asia’s business hub and Kazakhstan is on the brink of accession to the World Trade Organization (WTO). Kazakhstan is also ranked on major indexes among the world’s 50 most competitive nations and seeks to become one of the 30 most competitive nations by 2050.

shutterstock_112400354Seen in this context, Kazakhstan’s efforts since 2010 to create the new Customs Union, Common Economic Space and Eurasian Economic Community with its partners Russia and Belarus are clearly efforts to broaden Kazakhstan’s economic outreach rather than close it off from the global community. On Feb. 7, the CES opened the first fully integrated currency market between the three nations. Kazakhstan’s leading economists see these moves as a way to stimulate domestic and international investment in a wide range of industries from oil refineries and auto-making to light industry and food processing.

Aygul Tulembayeva, a former professor of economics at Al-Farabi Kazakh National University (KaNU) in Almaty, has noted that the Customs Union offers Kazakhstan an excellent opportunity to produce a balanced economy across multiple sectors. Prior to the customs union, Tulembayeva says, Kazakhstan was flooded with imported goods from China and elsewhere, which damaged the country’s trade balance and hindered the creation of domestic jobs. Eurasian economic integration will help reverse that and stimulate sectors beyond oil and gas. 

Regional Integration Has Worked Elsewhere

It is hoped that the Customs Union and the Common Economic Space will be for Kazakhstan what membership in the European Economic Community (EEC) proved to be for the tiny nation of the Netherlands in 1957: The crucial strategic and economic step to ensure long-term prosperity. The EEC, founded by the Treaty of Rome, did not stay as an elite club of six Western European nations. It has since grown into one of the largest trading blocs on the planet with a combined population of half a billion people in 27 nations. Already, there are signs that the Customs Union, the CES and the EurAsEC will grow in a comparable manner. Neighboring nations such as Kyrgyzstan and Ukraine, the second most populous of the 12 former Soviet republics in the Commonwealth of Independent States, are already exploring the possibility of joining the CU and the CES.

Integration Capitalizes on Domestic and Regional Success

For Kazakhstan, the combination of full membership in the WTO and being a founding member of the EurAsEC makes the Central Asian nation of only 16 million people a natural base for Asian and European corporations seeking to access the Russian market of nearly 150 million people. Far from being a regression back into the controlled economy and repressive atmosphere of the Soviet Union, integration capitalizes on the progress Kazakhstan and Russian have made over the last 21 years.

shutterstock_96443504Kazakhstan’s economic successes, primarily in the energy sector, have been well chronicled. But Russia has also emerged as a global energy power since the collapse of the Soviet Union. It is the world’s largest combined exporter of oil and gas and is likely to remain one of the world’s three main oil exporting nations. Russian civic society has also made strides in recent years and almost one third of the Russian population, some 45 million people, now have personal Internet access. The collapse in Russian living standards following the fall of communism in the early 1990s has been halted and largely reversed. All of this means that in Russia, which joined the WTO in August 2012, Kazakhstan has a dynamic partner with a growing domestic market for the new generation of businesses and industries that are launching in Kazakhstan.

Since Russia remains one of the two main languages of Kazakhstan (along with Kazakh), and since the government is encouraging the teaching and use of English as well, being a founding member of the CES and the CU as well a member of the EurAsEC places the Central Asian nation in the position of being the business and investment bridge between East, West, North and South. As both a mostly Muslim nation and a former socialist republic in the Soviet Union, Kazakhstan is also ideally located to provide a funnel for investment between Saudi Arabia and the wealthy Gulf emirates to the south and Russia to the north.

Kairat Umarov, Kazakhstan’s new ambassador to the United States, also told an audience at the Central Asia-Caucasus Institute (CACI) of Johns Hopkins School for Advanced International Studies (SAIS) in Washington, D.C., on Feb. 13 that his country viewed the Customs Union as a practical realization of the Kazakhstan president’s vision of integrating Eurasian countries in a manner similar to the European Union. “It is well known that a so-called ‘single economic space’ is an integral step toward the high level of economic integration,” Umarov said. He added that Astana saw its increasing participation in the CU and its upcoming accession into the WTO as mutually complementary and not contradictory processes. “Neither in negotiations on the WTO, nor in negotiations on the Customs Union, did Kazakhstan ever renounce its interests and the country considers both processes to be complementary rather than mutually exclusive,” the ambassador said. “Therefore, Eurasian integration and WTO accession have always moved forward in parallel.”

2008AstanaKazakhstan sees free trade and the fostering of external economic contacts across its frontiers as the best way to end its historic dilemma of being a landlocked nation cut off and isolated for centuries in the heart of the Eurasian land mass, Umarov said. “Kazakhstan is the largest land-locked country in the world and much of its foreign trade depends on the routes that go through neighboring states,” he said.

Umarov told his audience that membership in the CU would make Kazakhstan a more effective force to foster increased global trade within the WTO. The “establishment of the single economic space created a unified commodity market with a total GDP of about two trillion dollars and a population of 170 million people. Such a large market within a unified customs territory would make Kazakhstan even more attractive to foreign investors who have already considered Kazakhstan one of the most attractive markets in our part of the world,” he said.

Integration’s Success

The Customs Union “has become increasingly robust over the last 24 months or so. Unlike other, much more haphazard post-Soviet integration projects, the ECU (Eurasian Customs Union) is being implemented and firmly institutionalized,” KatarynaWolczuk, a senior lecturer at the Center for Russian and East European Studies at the University of Birmingham told Robert Coulson in an article published by Radio Liberty/Radio Free Europe (RFE/RL) on Jan. 8. “It is based on law. Very comprehensive. So the legal basis is much better, very improved. And also it is (actually) being implemented.”

Since the launch of the Customs Union on Jan. 1, 2010, trade between the three countries has been growing and each country has enjoyed an expansion of trade with its CU partners. Kazakhstan’s annual volume of trade with Russia and Belarus increased almost 80 percent in the four-year period from 2009 to 2012. Starting from 2009, total trade among the three countries increased by more than 25 percent in 2010 and by 67 percent in 2011, compared with 2009.

Viktor Khristenko, chairman of the board of the Eurasian Economic Commission said the CU’s rate of growth in trade between its three member states so far has been twice as big as the increase in the volume of its foreign trade. In the first nine months of 2012 the GDP growth in the member nations of the Customs Union was 4.5 percent.

shutterstock_96200648Olga Shumylo-Tapiola, a visiting scholar at the Carnegie Endowment for International Peace’s Brussels-based think tank Carnegie Europe, wrote in a paper for Carnegie published on Oct. 3, 2012 that the success of the new Eurasian Customs Union was substantial and solid, and that the new body was here to stay. “Though hurdles remain, member states are eliminating non-tariff barriers to trade within the union, moving toward a common external tariff, and fine-tuning a joint customs code. … The Customs Union’s influence on the world stage and in Europe’s neighborhood is likely to increase …,” Shumylo-Tapiola wrote.

British analysts Rilka Dragneva of the University of Manchester and KatarynaWolczuk of the University of Birmingham agree with this assessment. “The Eurasian Customs Union (ECU), the latest initiative, appears more viable (than other post-Soviet integration efforts) because of its better institutional framework, proven commitment to implementation and introduction of a system of rules harmonized with international norms and the WTO regime,” they wrote for Chatham House, the Royal Institute for International Affairs, in London in August 2012.

Integrating with regional partners has also allowed Kazakhstan to respond to the disruptions resulting from the 2008-09 global economic crisis. “The crisis has thinned down the flow of FDIs (foreign direct investments), decreased trade turnover, led to the introduction of protectionist mechanisms by some trade partners and seriously damaged the economies of neighboring states. This harsh reality, therefore, demanded a more active and joint approach to further integrate and modernize the regional economy,” Ambassador Umarov told his Feb. 13 audience. “Creation of the Customs Union will allow for more efficient use of the limited financial resources due to the global economic crisis.”

Far from being a regression to Soviet-era stagnation and protectionism, integration with Kazakhstan’s Eurasian neighbors will help expand the country’s emerging global economic role.

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