Outside pressure stimulates deeper integration of the Eurasian Union



May 26, 2015

Adjar Kurtov 

The editor – in-chief of the journal “Problems of National Strategy” of the Russian Institute for Strategic Studies

Published on April 14, 2015 in Stoletie

Translated by Kristina Rus

EEU: issues and trends

How external pressure stimulated deeper and wider  integration

Prospects of development of the Eurasian Economic Union were aided by a new factor. After the visit of the head of the Russian government, the far away Vietnam has expressed a desire to create a free trade zone with our Union. In fact, we are talking about a new stage of Eurasian integration. Indeed, in this area there are significant changes.

On January 1, 2015, de jure a new structure was created – the Eurasian Economic Union, which includes Russia, Belarus, Kazakhstan and Armenia. In May they will be joined by Kyrgyzstan. If before the creation of the Union we were talking mostly about coordinating common approaches in trade, today far bigger tasks are on the agenda. Our economic cooperation will cover new areas and at the same time take into account the acquired experience.

The effect from abolition of customs control and free trade, had already been largely exhausted. Therefore, further growth is possible now mainly from the services marketplace, capital and workforce. We must not forget that the service market is more than half of the GDP of each of our States.

Nevertheless, we should not think that all the problems of interaction in the sphere of trade are already fully resolved. First, several years of integration interaction allowed us to detect a number of problems, requiring a change in previous approaches. Thus, in particular, it was decided to prepare a new edition of Customs Code of the Eurasian Economic Union. The current document contains too many references to national legislation of the participating countries, and this constantly creates confusion. Businessmen often fail to understand how exactly they should prepare supporting documents for export and import.

Secondly, no member of our integration union is going to abandon those natural advantages that we have because of the abundance of natural resources and vast areas suitable for agriculture. Under overt sanctions’ pressure these resources can help compensate for the lack of investment funds.

The potential of Russia and its partners in the Eurasian Economic Union is enormous. Four countries – Russia, Kazakhstan, Belarus and Armenia, together rank first in the world for oil and gas extraction, second in the production of mineral fertilizers, together they are the third largest producer of electricity, iron, wheat and potatoes. That is why we should not be afraid of any sanctions.

Any new Union, and especially economic, develops much more successfully when the economies of its member countries are on the rise.

In surfing it’s called “to catch the wave”, that is, to use favorable external environment for own acceleration. In our situation we had to form a new Union under clearly adverse conditions.

Today, there is an obvious acute crisis in the relations between the West and Russia, a series of mutual sanctions, layered on the fall of the Russian ruble [which had since rebounded – KR] and oil prices on world markets. In 2014 the total GDP of the States of the Eurasian Economic Union grew only by 0.9 percent. This year even a slight decline is predicted of about 1.4 percent.

Anyone can panic from this. In times of crisis no matter – people or states, usually “tighten the belt”. People usually begin to save by cutting “external” expenses (foreign travel or additional international obligations). In our situation, this logic could harm integration efforts. It should be recognized that Russia’s partners in the EEU during the second half of 2014 and early 2015 have attempted to go this way. How else can one interpret the restrictions, for example, that Kazakhstan put on imports of Russian oil products?

But we should not make a tragedy out of this. Unpopular now classic of Marxism was fond of saying that the revolution only reinforces itself, creating a solid counter-revolution. Today our Union is tested for strength. Its core is undoubtedly Russia. Our country occupies the first place in foreign trade of Belarus and Kazakhstan. In 2014, despite some slowdown, the Russian trade with these two countries amounted to almost $60 billion.

Western sanctions failed to interrupt our coordination in the economy. The volume of investments of Russia into the economy of Belarus and Kazakhstan exceeded $ 18 billion. In turn, these countries have invested about $10 billion in Russia.

Over the course of the existence of the Customs Union, the number of the joint Russian-Kazakh enterprises in Kazakhstan has increased from four thousand to 16 thousand. Another encouraging trend has been the change in the structure of mutual trade within our Union. This trade became more harmonious. The proportion of raw materials in it is less than half that in trade with third countries.

The latter circumstance is quite remarkable. Because our homegrown liberal economists, who usually relay the Western point of view in the information space , do not tire of repeating that the Eurasian Economic Union supposedly was originally defective. Because from the point of view of their idols – Western theorists of macroeconomics, countries producing and exporting raw materials cannot successfully integrate. What is behind such a position is not difficult to guess. First, a “successful West”, imposing that position on the rest of the world, is obviously seeking to avoid coordination of the countries – exporters of raw materials. It is easier for the West to influence such countries individually, twisting hands of one, and bribing others or by toppling governments in coups in the third. Nobody in the West wants to repeat the nightmare of October 17, 1973, when Arab members of OPEC took a unanimous position, sharply increasing oil prices.

Secondly, the cynicism of the West and its supporters in the camp of liberal economists in our countries is that the latter are struggling to lower prices for natural resources, and thus deprive producing and exporting countries of financial liquidity. Simply put, these countries are forbidden to earn money that they could spend on upgrading their own economies. The consequence of this approach is a slowdown in transition of these countries to new economic structures and simultaneously a growth of financial dependence on a specific group of external creditors. And in the modern world these are the financial structures, controlled by the U.S. and its allies from Western Europe – the IMF and the World Bank.

In the case of the EEU, not without difficulties, but progress has been made to move from a resource-based to high-tech economy.

Earning money on the export of raw materials to third countries, we receive funds for modernization, the products of which are exchanged in the framework of the integration union. For this in particular the common market of the EEU was created.

At a recent meeting in Astana, the heads of states of Russia, Belarus and Kazakhstan discussed the measures that should help mitigate the negative effects of the crisis for the population. It was decided to promote the development of the real sector of economy and stimulate employment. For example, an adoption of the concept of formation of common markets of electric energy, gas, oil and oil products was planned.

Thus, external pressure, not only failed to stop the integration, but even stimulated its deepening and expanding in new areas of cooperation. Not by chance, in Astana the parties agreed to work out measures for the coordination of monetary policy and the possibility of future formation of a monetary Union. This would alleviate the problems associated with fluctuations in national currencies.

In other words, the Union is developing both horizontally and in qualitative terms. And the malice of our enemies only shows their worry. It is difficult to ignore the success of the EEU. As it is difficult not to see the gradual formation of a new center of power, alternative to the West.

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