The Eurasian Economic Union: A Complex, Economic Tool

By Tom Michael

When Kazakhstan signed a treaty along with Russia and Belarus for a new Eurasian Economic Union in May 2014, there was no shortage of optimism amongst the early signatories and no shortage of pessimism amongst the traditional observers of the former Soviet space.eurasia

The new pact officially took effect eight months later, on January 1, and the three original members remained bullish on the group’s potential. Armenia’s accession occurred the very next day, on Jan. 2, with Kyrgyzstan’s membership becoming final on August 12. (It was also on that day that customs controls were removed on the borders between Kyrgyzstan and Kazakhstan.) In the months since, even as Tajikistan, Syria and India consider establishing closer ties with the union, some economic and political clouds have formed on its horizon. But all member countries remain cautiously optimistic and determined to see it where it leads.

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Kazakh President Nursultan Nazarbayev

Kazakhstan’s President Nursultan Nazarbayev first suggested the creation of a regional trading bloc during a speech at Moscow State University in 1994, and over the next two decades it came to fruition, culminating with the establishment of the Eurasian Economic Union. While some – most notably Russian leaders – have pressed for a more political, military and cultural EAEU, Kazakhstan, an emerging global player and major economic force in Central Asia, has resisted, insisting that the organization remain strictly economic to allow for the still fledgling democracy’s continued independence and sovereignty.

While Kazakhstan wanted the Eurasian Economic Union to be economic in nature, its government officials made clear that they didn’t view it as a panacea for economic challenges – or the only vehicle for achieving the country’s ambitious geopolitical goals. Kazakhstan was also a member of the Customs Union, a precursor to the Eurasian Economic Union, as well as of the Eurasian Economic Community, another precursor group. As Foreign Minister Erlan Idrissov explained, the treaty establishing the EAEU was “only a beginning of the hard work to establish it.”

“I want to emphasize that the course toward the Eurasian economic integration is a strategic choice of our country,” Idrissov said in Almaty last February. “Amid the global turbulence, economic integration is an objective trend and a natural phenomenon. No country can develop without integrating the economy and our economy needs new markets and the removal of barriers to trade and investment.”

Polling of voters in each of the countries by the Eurasian Development Bank reveals that, at least through the end of 2014, clear majorities favored the establishment of the Union with Kazakhstan’s population returning the most favorable views. In 2014, 84 percent of Kazakhs viewed the Union favorably compared to 79 percent of Russians and 68 percent of Belarusians.

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Principal Deputy Assistant Secretary of State for South and Central Asian Affairs Richard E. Hoagland

In March, for the Bureau of South and Central Asian Affairs gave a speech at Georgetown University in which he declared Kazakhstan a “key member” of the EAEU. The high-ranking U.S. government official also suggested that he concurred with Kazakhstan’s push to keep the organization as free of politics as possible.

“In our view, the Eurasian Economic Union should be trade-liberalizing rather than trade-restricting, should not become overly politicized, and should not impose conditions or restrictions on its members’ ties with other countries,” Hoagland said. “So we encourage the Eurasian Economic Union to follow the successful, open model of the European Union and not establish new trade barriers, which would impede regional economic growth.”

Hoagland also acknowledged that while Russia is the 800-pound gorilla in the mix, the U.S. prefers that Central Asian members of the group retain as much autonomy as possible.
“We know that Russia will continue to be a major economic force in the region,” Hoagland said. “At the same time, Central Asian states are best placed to decide for themselves how to further their economic development, expand their trade ties, and deepen their integration with global markets.”

Eurasian economic Union emblem

Flag of the Eurasian Economic Union

“The expansion of the Eurasian Economic Union, for example, should not come at the expense of the ability of countries in the region to fulfill their existing international commitments, including commitments to the World Trade Organization, nor should it restrict their ability to enter into other bilateral or multilateral trade relationships.”

Kazakhstan’s long-standing bid to join the World Trade Organization saw the successful completionin July. When signing the agreement in Geneva on July 27, Nazarbayev said the Kazakh economy “has become stronger and more open” as a result of negotiating to become a member.

“In the mid-1990s, Kazakhstan had ties only with post-Soviet states, while now we are trading with 185 countries of the world,” Nazarbayev said.

The European Union is Kazakhstan’s main economic partner, accounting for more than 54 percent of its foreign trade. The country also has a sizable contribution with Russia, China, the United States, Canada and other countries.

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Russian Flag

Kazakhstan’s participation within the World Trade Organization is crucial, the head of the Russian Economic Development Ministry’s trade negotiations department Maxim Medvedkov told the Russia Times website after the WTO announcement in July.

“We’ve expected this to happen for many years,” Medvedkov said. “This is the result of many years of talks, with Russia’s direct participation in the last six years.”

The signing of the protocol by Kazakhstan is a big advantage for the Customs Union and the Eurasian Economic Union, he added.

“This is the next step towards forming its international legal standing,” Medvedkov said. “As soon as Belarus finishes its accession to the WTO – hopefully this will happen in the near future – the union will be eligible to become a member of the organization.”

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Executive Director of the U.S.-Kazakhstan Business Association in Washington Sarah Frese

Sarah Frese, executive director of the U.S.-Kazakhstan Business Association in Washington, told EdgeKz that her organization, which works to facilitate trade and business opportunities between the two countries, is generally encouraged by Kazakhstan’s participation in the EAEU.

“With the Eurasian Economic Union we think there are benefits especially if it remains an economic agreement and is implemented in a rules-based way to make sure the rules are followed and implemented fairly across all five members,” Frese said.

Frese said the pharmaceutical industry will be the first standardized across all five members of the Union, with Kazakhstan in the lead.

“That means if a country registers in Kazakhstan to sell a new medicine or medical device, within a certain period of time it should be accepted in Russia or Belarus,” she said. “We’ll be working closely with the life sciences sector and the Kazakhstan government to push for best practices and standards.”
Frese also said Kazakhstan’s accession to the WTO – and long, detailed and rigorous requirements for fulfilling its membership obligations, bodes well for its own economy and its position of leadership within the EAEU.

“We think that’s a really good sign – a lot of reforms are already in process,” Frese said. “Having that happen at the same time the Union is being formed – and a lot of the work is yet to be done – but having this formed at the same time as Kazakhstan is committed to standards of the WTO is a really positive development.”

But as Russia pushes for a common currency as part of the Eurasian Economic Union, Kazakhstan is pushing back. Kateryna Boguslavska, an analyst for the Center for Security Studies in Zurich, said that Russia may be overplaying its hand.

“In the short-term, relations between Russia, Belarus and Kazakhstan may worsen as concerns about the speed of further integration are exacerbated,” Boguslavska wrote on the organization’s website in late July. “Recently, Russia has begun promoting the idea of establishing a common monetary market and one currency. However, neither Kazakhstan, nor Belarus appear to be ready to even follow the Russian sanctions against certain Western imports. Kazakhstan has denied any discussions on establishing a common currency market have even taken place.”

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Heads of state of the EAEU’s three founding nations, Belarus, Kazakhstan and Russia

Indeed, a few months earlier in April, Deputy National Economy Minister Timur Zhaksylykov told reporters in Astana: “Kazakhstan has a clear and consistent position on excluding the possibility of introducing a single currency within the framework of the Eurasian Economic Union,” he said.

At the time, Kazakhstan’s rejection of a common currency was the sign of a diverging views on the long-term priorities of the EAEU process. It came agains the background of growing strains in economic and political ties between Russia and the West over the crisis in Ukraine, and against the background of Kazakhstan’s continued push toward the West as hedge against becoming too reliant on Russia or China for exports.

The beef between Kazakhstan and Russia is real. Since March, Kazakhstan has restricted sales of Russian food products – including meat – citing consumer safety concerns. Meanwhile, Russia has cited similar reasons for imposing bans on Kazakh dairy products, fruits, and vegetables. Restrictions have since been lifted or eased.

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Kazakhstan’s Ambassador to the United States Karait Umarov

In fact, during the Union’s first three months overall trade among member countries was down – not up – declining by about 36 percent in comparison with the same period last year, according to the International Relations and Security Network.

Despite rumblings of discontent among member states and their businesses, Kazakh officials remain optimistic that the EAEU will help its economy grow by opening markets and establishing it as a trustworthy, reliable and friendly business partner – within Eurasia and beyond .

“As a member of the Eurasian Economic Union, Kazakhstan has the lowest tax rates in the area and is a gateway to the vast market of 180 million,” said Karait Umarov, Kazakhstan’s ambassador to the United States. “Any Western company establishing its presence in Kazakhstan will enjoy the best investment environment and easy export of its products produced in Kazakhstan to Russia or any other countries in the region.”

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