Complex Efforts to Create the Eurasian Economic Union

In a recent address to the heads of foreign diplomatic missions in Kazakhstan, President Nursultan Nazarbayev reflected on Kazakhstan’s consistent move forward towards the establishment of the Eurasian Economic Union.

The President reiterated that the establishment of such a union is based on pragmatism and the economic necessities of Kazakhstan.

“I would like to emphasise once again that this is an economic association,” Nazarbayev said, adding that this year will be marked by the signing of the agreement on the Eurasian Economic Union (EEU).

A few weeks ago, Kazakhstan’s Vice Minister of Economy and Budget Planning Timur Zhaksylykov said the EEU treaty is very important to Kazakhstan and will define its foreign policy for years to come.

Indeed, Eurasian economic projects based on the consistent efforts of Kazakhstan, Russia and Belarus have already begun to show results.

Among the main purposes of Kazakhstan’s participation in Eurasian integration is access to expanded consumer markets and the attraction of investments to Kazakhstan’s manufacturing sector.

According to government data, since the launch of the Customs Union, the volume of investments to the manufacturing industry of Kazakhstan has increased by 88 percent from $1.8 billion in 2009 to $3.4 billion in 2012. Foreign direct investment during that period also increased by 34 percent from $21.4 billion to $28.3 billion.

On Jan. 1, Kazakhstan also gained access to the government purchases regimes of Russia and Belarus, while producers in these countries received access to Kazakhstan’s government procurement. Russia and Belarus had had access to each other’s purchases since 2011.

Total government purchases of the member countries of the Eurasian Economic Space reached $198 billion in 2012. To compare, the volume of state purchases solely in Kazakhstan was $7.6 billion in the respective period, which is 26 times less than the common volume of the member states.

The Eurasian integration processes, of course, face many challenges based on their complicated nature. Among the most substantial has been the creation of a common legal regime.

As of now, Eurasian integration is based on multiple international agreements that are difficult to manage. In the beginning of 2011, member states began to codify these agreements to make them easier to manage.

Yet there are concerns in Kazakhstan’s business community that the structure and quality of the codified agreement could be below par and could represent a challenge to the sustainability of the integration processes.

One particular concern relates to the fast speed at which such complex processes are being implemented. The Agreement on the Eurasian Union seeks to codify more than 60 international agreements adopted within the frames of the Customs Union and Eurasian Economic Space. The agreement contains multiple sections on competition policies, natural monopolies, transport, industry and economic practices. The agreement would embrace all sectors of economies of all member states and requires more time and elaboration.

The integration processes that are underway now did not appear overnight. Compared with the initial efforts of reviving economic ties among post-Soviet states on the basis of the Commonwealth of Independent States (CIS) that did not yield much positive results, the current state of affairs present a more mature development.

First, the Customs Union member states have agreed on common customs tariff. Most of the progress in this area was reached in the late 2000s.

Second, a common Customs Code has been adopted. This common legislative act provides a common customs regime, including customs valuation, and other aspects of regulation.

Third, in July 2011, the countries removed internal border controls on transported goods, which significantly progressed the integration process. According to Russian President Vladimir Putin, this process “finalized formation of a fully-fledged unified customs territory with clear prospects for the realization of ambitious business initiatives.” The member states created a solid institutional basis for integration cooperation.

The Commission of the Customs Union is an institution which has issued about 800 acts. Another major institution is the Eurasian Economic Commission, which facilitates collaboration in various areas, including macroeconomic procedures, common actions in the agricultural sector and on antimonopoly issues. There are 17 committees functioning under the Commission. Given the progress achieved in the Eurasian processes, the Eurasian Economic Union should be in a position to overcome the challenges it faces and provide economic benefits to its members. The new fundamental agreement is to be readied by late spring this year, while the EEU is scheduled to be launched by Jan. 1, 2015.

Much will depend, though, on the abilities of the three governments to work out the details of the agreement in such a way that it does not create benefits for some while creating detriments for others.