Eurasian Economic Union Comes into Force Jan 1, Promising Benefits from Integration

The treaty creating the Eurasian Economic Union (EEU) took effect Jan. 1, 2015, with economic borders between Armenia, Belarus, Kazakhstan and Russia becoming significantly thinner. Kyrgyzstan is scheduled to join by May, according to the documents signed in Moscow on Dec. 23.

Kazakhstan has been one of Eurasian integration’s biggest proponents. President Nursultan Nazarbayev first expressed the idea and rationale behind creating the EEU in 1994.

After two decades of long negotiations and weighing the pros and cons of the EEU, as well as much preparatory work, such as the Eurasian Economic Community, Customs Union and the Common Economic Space, the leaders of Kazakhstan, Russia and Belarus met in Astana on May 29, 2014 to sign a treaty establishing the EEU.

“The document reflects all of the basic aspects related to international organisations and follows all principles of the sovereign equality of states. It also respects certain specific features of the member states’ existing politics,” Nazarbayev told the audience that day.

Many ordinary people wondered how the EEU would benefit them. However, as the union is becoming a reality, its benefits become more and more apparent.

According to Minister of Eurasian Economic Commission for Economy and Financial Policy Timur Suleimenov, the EEU’s launch on Jan. 1 means that there will not only be a single market space for goods, but also for services. As he explained in an extensive interview with Rossiyskaya Gazeta newspaper, this means that citizens of all EEU member states will be able to travel, work, study and get medical treatment as easy as they do in their home countries.

There will be notably less paperwork and formal procedures.

Tax regimes for EEU member state nationals who are residents in another member state will be equal to the local population and businesses.

Education certificates, as well as other types of documents will be legal and accepted everywhere necessary.

Citizens will also get equal access to medical services in member states, as well as social services. Access to preschools is one of the most valuable advantages of the changes.

All of this is expected to increase competition in labour markets, including in Kazakhstan. The country will also see an increase in the quality of its human capital. However, reaching this historical day wasn’t as easy as signing the treaty was. There were several steps starting in the mid-2000’s taken to establish the EEU. The first step towards economic integration was the creation of a free trade zone.

The second step was the creation of the Customs Union. The decision to create the Customs Union was made at an informal summit of Eurasian Economic Community (EurAsEC) member states in 2006. But only on Jan. 1, 2010, the Customs Union of three EurAsEC member states – Kazakhstan, Russia and Belarus – became a reality. On July 6, 2010, the Customs Code of the Customs Union came into force.

Customs Union member states began closer cooperation and there was a significant increase in mutual trade turnover, as well as improvement in overall economic development.

In 2013, despite the ongoing turbulence in global economy, trade turnover between the three countries increased, reaching $64.1 billion. The structure of bilateral trade has also changed with the share of exported and imported raw materials declining and the volume of technological products with high added value increasing.

Since then, a single market for goods without tariffs was created. This has given Kazakhstan’s products greater access to a larger market. The creation of joint ventures and cooperatives has intensified, new jobs have been created and the range of social services has expanded.

Business conditions have improved noticeably. The members of the Customs Union have seen increases in their rankings on the World Bank’s “Ease of Doing Business” index.

This was followed by the third step of integration – the Common Economic Space (CES). The CES is based on 17 international agreements that were developed and adopted by member states in 2010 and entered into force on Jan. 1, 2012.

The CES significantly enhanced the economic potential of member states.

For Kazakhstan in particular, the establishment of the CES has enabled businesses to reduce transactional costs, consequently freeing up working capital to invest in business development.

“CES countries can provide a model for a powerful union, capable of becoming one of the modern world’s big economic forces as well as acting as an effective link between Europe and the dynamic Asia-Pacific region,” Deputy Minister of Foreign Affairs of Kazakhstan Samat Ordabayev said in his article “Building an Eurasian Economic Union on Consensus, Mutual Respect and Benefit” published on May 20, 2014.

The EEU has a total area of 20.2 million square kilometres. It is five times larger than the entire European Union and two times greater than the area of China and the United States. The combined population of its five member states exceeds 170 million. The main contribution to the combined GDP (with GDP calculated according to the purchasing power parity principle) of the EEU comes from Russia, with a $3.558 trillion GDP, followed by Kazakhstan with a $420 billion GDP and then Belarus at $171 billion, Armenia at $24 billion and Kyrgyzstan – $19.2 billion, according to estimates from the IMF’s World Economic Outlook for October 2014.

While the union promises to bring great benefits to respective economies, there should be no doubt that Kazakhstan and other EEU members remain independent states free to pursue their own national interests. They only need to seek to expand their economic opportunities by creating synergy and joint potential that would go beyond the simple combined total of the member states.

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