With the milestone agreement to create a Eurasian economic union
clinched in Kazakhstan on Thursday, Russia put cheap energy resources at
the head of its drive to pull former Soviet states away from European
integration and into its orbit.
The Eurasian Economic Union agreement, signed by the leaders of
Russia, Belarus and Kazakhstan in the Kazakh capital of Astana, will
come into force on Jan. 1, 2015. It envisages the gradual integration of
the three former Soviet countries' economies, establishing free trade,
unbarred financial interaction and unhindered labor migration. The pact
combines the previous agreements reached between the three countries
under the Customs Union and the Single Economic Space, which were formed
in 2010 and 2011 and have been generally considered a success.
At the signing ceremony, President Vladimir Putin said "Today we are
creating a powerful center of gravity for economic development, a large
regional market that unites more than 170 million people," according to
an official transcript.
He also stressed that the union's combined territory is a hydrocarbon
treasury, possessing a fifth of all global natural gas resources and 15
percent of all oil reserves.
Russia's gain in entering the Eurasian union is more political than
economic — particularly as Russia is still smarting from the recent
failure of its attempts to draw Ukraine into the Customs Union. As for
Kazakhstan and Belarus, they are pursuing their own economic interests
rather than any dream of forming super-state between Europe and Asia,
both their leaders and analysts said.
Benefits for Small Ones
A day before flying to Kazakhstan, Belarussian leader Alexander
Lukashenko was not overly satisfied with the preliminary terms of the
agreement, the signature of which Putin would later call "an epochal
"We offered to conclude a deal with no limitations … But this is not
the agreement we sought and not the one our partners initially spoke of,
Russia in particular, ” Lukashenko said at a meeting with ministers in
Minsk on Wednesday, the Regnum news agency reported.
He also said that in signing the agreement he is seeking first and
foremost benefits for his country, though stressed that Belarus has
never been greedy.
One of Belarus's concerns is that the single market being developed
does not include energy, meaning that it will have to continue paying
duties to Moscow on its exports of oil products based on oil imported
from Russia, said Julian Cooper, professor of the Centre for Russian and
East European Studies at University of Birmingham.
Belarus buys oil from Russia at Russia's internal price, which is
about half the price the world pays on average, and then produces
petroleum for export. Until recently, Belarus had to pay customs duties
on oil imports for that purpose of up to $4 billion per year, but it has
negotiated to subtract $1.5 billion from that sum for next year.
Lukashenko also was promised that export duties will be eliminated
when a single market for energy is created, something not planned until
Kazakhstan, while being historically very supportive of the Eurasian
union with Russia and Belarus, had also some concerns of its own.
Speaking at the Higher Eurasian Economic Council last year in Minsk,
Kazakh President Nursultan Nazarbaev said Kazakh businesses had been
experiencing difficulties exporting their products, especially to
"Technical barriers on our exports still remain, including sanitation
requirements, difficulties with licensing and certification,” he said.
news agency Total.kz reported.
These limitations had been particularly hitting Kazakh meat exports, according to Nazarbaev.
"Problems arise because the countries within the union have different
technical and sanitation standards for imported products,” said
Alexander Knobel, the head of international trade laboratory at the
This, he said, should had been solved within the Customs Union, prior to signing any other agreements.
Hastily Made Agreements
The logical progression of economic integration should have first
established the free movement of products within the Customs Union, then
go on to the Single Economic Space to ensure an unrestricted provision
of services, and only then switched to an economic union where goods and
services, finance and labor circulate without restrictions, Knobel
Instead, the union is hastily leapfrogging to economic integration while leaving trade issues unsolved, he said.
Initially, the union was slated to have a single market for energy,
finance and other areas by 2015. But the new agreement does not say how,
for instance, the financial market will be regulated. It just says that
it will be a single market starting from 2025. The same applies to oil
and gas. Electricity is set to become one market in 2019 while the
markets for medical products and pharmaceuticals are scheduled for
unification in 2016.
"All of this could have been done within the Customs Union agreement.
But at least the sides have now established fixed dates by which they
will have to reach further agreements on most important issues,” Knobel
According to the Eurasian Commission — the regulatory authority of
the Customs Union and the Single Economic Space — trade turnover between
the countries of the union in 2013 amounted to $64 billion, down from
$67.8 billion a year earlier. By comparison, Russia's trade turnover
with Europe last year surpassed $400 billion.
"Trade within the [Eurasian] Union will be less competitive and
demanding in terms of the quality of goods and their technological level
than trade with economically more advanced partners such as the
European Union, U.S. or Japan,” Cooper said, adding that there is a
danger that the union may hold back the modernization of all three
At the same time, in the long run the economic integration has high
chances of being mutually beneficial for all states, he said: "In time,
there should be gains for all three countries as these trade and
regulatory freedoms develop, in particular a more favorable business
climate may be created with the prospect of increased foreign direct
The Past And The Future
Russia is likely to draw more partners to the union by transferring
resources to them in the form of reduced prices for gas and oil. In this
transaction, the incurred loss for Russia is insignificant, while the
gain for its partners would be substantial.
An example of this is Armenia, which was set to integrate with Europe
but changed its mind after it was offered gas in 2014 at the price paid
by Belarus — about $170 to $180 per 1,000 cubic meters, Knobel said.
"For Armenia this is about 1.5 percent of gross domestic product per year, which is very valuable,” he added.
Economic union with Russia is even more profitable for Belarus,
Knobel said, as the gains from exploiting oil and gas trade with Russia
constitute 10 percent of its economy.
"And with all the discounts underway this figure will grow to 15
percent of GDP, so integration makes a lot of sense,” the analyst said.
Other countries which may join the Eurasian union in the not so
distant future include the Central Asian state Kyrgyzstan, whose leader
discussed the possibility of joining the pact, Putin said Thursday.
Another likely member is Turkey.
"Today, once again, Nazarbaev raised the issue of Turkey as a future
member, an interesting prospect and not impossible now that Turkey’s
chances of accession to the EU are diminishing,” Cooper said.
But one country that Russia wished to see within the union and that has now been lost is Ukraine.
Russia has already offered Kiev maximum preferences for joining the
Customs Union and was ready to yield on absolutely every issue except
radically low gas prices. But in 2013, rather than agree to join the
Customs Union, Ukraine said it was ready to conclude a landmark trade
agreement with the EU.
Last year, Victor Yanukovych, Ukraine's former president, tried to
reverse that decision and move closer to Moscow. As a result, he was
ousted by street protests. Today, Ukraine's entry into a union with
Russia, Belarus and Kazakhstan looks less likely than ever.