Eurasian Economic Union Launches in Challenging Times

The long-awaited Eurasian Economic Union (EEU), the single market for goods, services and labour uniting Armenia, Belarus, Kazakhstan and Russia, has taken effect, though dire conditions in the union’s largest economy may be dampening some enthusiasm for the launch.

view_EAESThe EEU agreement went into effect on Jan. 1 for Belarus, Kazakhstan and Russia, with Armenia officially joining on Jan. 2. Kyrgyzstan is set to join in May, and Tajikistan is in discussions about joining.

The new union is organised into several governing bodies. Supreme authority rests with the Supreme Eurasian Economic Council, which is made up of the heads of state of the member nations. The Eurasian Economic Commission (EEC) operates as its regulatory body, with an EEU court in Minsk and the EEU Development Bank in Astana. The new common market comprises more than 170 million people and has a combined gross domestic product, calculated reflecting purchasing power parity, of more than $4 trillion.

The EEU, Kazakh leaders have repeatedly stressed, is purely economic. Writing for the European Council on Foreign Relations on Jan. 12, Dosym Satpayev, director of the Risk Assessment Group and co-founder of the Alliance of Analytical Organisations of Kazakhstan, noted that it was at Astana’s initiative that the union’s basic principles contain language about respecting each member state’s political system, which means that members do not have to make political changes as a result of closer integration.Members of the union also have a right to withdraw, a point leaders, including President Nursultan Nazarbayev of Kazakhstan, have repeated.

Kazakhstan enters the EEU with economic goals that include increasing its overall competitiveness and increasing the quality of its labour force. As this newspaper has reported, following their accession to the Customs Union, the major precursor to the EEU, the three countries saw their positions in the World Bank’s Doing Business Report improve. It is hoped that the new union will continue that process. EEU leaders have expressed interest in making official trade contacts with potential partners including the EU immediately, and the union is currently in negotiations over free trade zones with India, Israel, Turkey, Uzbekistan and Vietnam. Russian Deputy Foreign Minister Vasily Nebenzya has said that some 40 countries or state groups have expressed willingness to create free trade zones with the EEU, Sputnik International reported on Dec. 31.

Unlimited access to the procurement markets of other member states is also a major benefit, as is increasing cross-border trade across Kazakhstan and Russia’s long land border and attracting foreign investors seeking access to Russia’s larger market to take advantage of investment incentives in Kazakhstan. Access to transport infrastructure will be eased and transport costs and timelines are expected to be lowered. With new rail and roadways in progress, transport is hoped to become a major new sector of Kazakhstan’s economy.

For the union’s citizens, as this newspaper has noted, paperwork requirements will be slashed, and accessing work permits and pensions across the EEU should be as simple as in citizens’ home countries. Medical care and education, including preschool access, is also to be available in all member countries to all citizens of the union.

The union has and continues to face criticism. Past criticism has often focused on the EEU as an attempt to recreate the Soviet Union, sentiments dismissed by both Nazarbayev and President Alexander Lukashenko of Belarus. Indeed, Nazarbayev is credited with first suggesting the idea of a greater Eurasian Union 20 years ago. Proponents of the union in Kazakhstan have gone to great pains to stress its economic and non-political nature as well as the mechanism that allows for an exit from the union for any reason.

More recent criticism questions whether, with its largest economy faltering, the EEU will actually be of great benefit to its smaller members, particularly with Kazakhstan’s export-based economy. Kazakhstan’s exports to Russia declined in the first half of 2014, as did overall trade between the two countries. Trade between all three countries of the union declined between January and October of 2014, though Nazarbayev noted in a December meeting with Russian Prime Minister Dmitry Medvedev that though trade had decreased in value, it increased in volume.

Russia’s current economic troubles and tumbling rouble, brought on by low oil prices and Western sanctions, are being blamed for downturns in some of Kazakhstan’s industries. As Tengrinews reported on Jan. 2, quoting automobile market experts including magazine editors, the head of the Automobile Union, the Association of Kazakhstan’s Auto Business and others, the industry will suffer from a flood of cheap Russian cars, while Kazakh automakers are already resorting to slashing prices and spending and sending workers on unpaid leave to keep expenses down.

There are also ongoing tensions between EEU members over issues related to EU sanctions against Russia, in particular over Russia’s ban on the import of some Belarussian food products for fear of receiving re-exported EU products, and its ban on the transit of Belarussian food to Kazakhstan through its territory. Lukashenko has complained that these bans were enacted unilaterally and without consultation, particularly at the Dec. 23 EEC summit in Moscow. Neither Belarus nor Kazakhstan have joined Russia in banning the imports of EU products, leaving their neighbour to handle for itself the repercussions of the ongoing conflict in Ukraine.

Nazarbayev himself has confirmed that current economic conditions will impose challenges on the new union. “The instability of world markets, the policy of sanctions, the deterioration of trust between the leading world powers, the threat of aggravating military and political situation – all of this will impact the processes for building the Eurasian Economic Union,” Nazarbayev said at the EEC Summit. Kazakhstan recently announced that it will be dipping into its National Fund to finance major infrastructure and other projects in an attempt to maintain economic growth and development amidst falling oil prices and other economic turbulence.

For now, the countries of the new union are engaged in creating and refining the ground-level details of their union. Kazakhstan has confirmed that migrant workers from within the EEU will not need certificates and may sign labour contracts in EEU countries without exiting and re-entering the country where they wish to work. The Ministry of Healthcare and Social Development does not expect a huge influx of labour from fellow member countries and no threat to Kazakhstan’s labour market, Trend.az reported on Jan. 8, quoting Deputy Healthcare and Social Development Minister Svetlana Zhakupova. The number of foreign labourers in the country is expected to remain roughly the same as last year. In 2014, nearly 8,000 workers from Russia came to Kazakhstan, 560 from Belarus and 260 from Armenia. The 2014 quota for foreign labour was 63,000 people, though only 29,000 registered, the ministry reported. The 2015 quota is 63,900.