Four years of the Eurasian Economic Union: an economic flop?

ZOiS Spotlight 8/2019 by Ann-Sophie Gast (27 February 2019)

Summit of the Eurasian Economic Council on 11 October 2017 in Sochi, hosted by Russian President Vladimir Putin. © Kremlin Pool/ Alamy Stock Foto

It is a good four years since the Eurasian Economic Union (EAEU) was launched in January 2015. The EAEU, currently comprising Russia, Kazakhstan, Kyrgyzstan, Armenia and Belarus, is one of 15 post-Soviet regional organisations. Compared to the other organisations, however, it calls for much deeper economic integration and, with that, more transfer of sovereignty by its member states. The EAEU’s main regulatory body, the Eurasian Economic Commission, has wide-ranging competences in the fields of foreign trade, alignment of standards and harmonisation of legislation. Decisions by the various EAEU bodies are reached by consensus or supermajority and are then directly applicable as EAEU law without further ratification.

Expanding power, promoting prosperity

The founding of the EAEU was one of the main foreign policy projects for Russian President Vladimir Putin’s third term in office. Against a backdrop of increasing influence of the European Union (EU) in Russia’s western neighbours and China’s growing presence in Central Asia and the Caucasus, the EAEU was meant to bring the region’s countries closer together within a new institutional architecture, thereby reducing Chinese and EU influence in the EAEU member states, consolidating Russia’s regional sphere of influence in the region and boosting its standing as a global player.

One of the main narratives during the three years of negotiations which preceded the signing of the treaty establishing the EAEU in May 2014 was the need to create an internal market, where trade would flourish following the abolition of customs duties and other barriers. The EAEU was intended not only to improve networking among its members but also to make them more internationally competitive, promote their economic integration into global markets, increase prosperity and stimulate modernisation and development.

Underwhelming outcomes

A good four years after the launch of this major regional initiative, the outcomes are less than impressive. Not only has trade among the five member states declined: so has their collective GDP. The anticipated trade diversification has remained out of reach; within the EAEU, Russia is still by far the most important trading partner for the other four member states. Various trade disputes between members and the continued existence of indirect barriers to trade have led to something of a stagnation of the integration process. Meanwhile, with its flagship infrastructure project, the Belt and Road Initiative, China’s presence and influence in the region have increased.

The total GDP of the three members of the Eurasian Customs Union (EACU) – Kazakhstan, Belarus and Russia – amounted to USD 2.4 trillion in 2014. However, in 2015 – the first year in which the EAEU’s membership increased to five countries – the figure fell to just USD 1.6 trillion. In 2017, its collective GDP was USD 1.8 trillion. The EAEU's foreign trade turnover with third countries also decreased, from USD 873.1 billion in 2014 to USD 634.2 billion in 2017. Trade among the EAEU countries has also slumped. In 2014, trade turnover between Belarus, Kazakhstan and Russia amounted to USD 61.2 billion. In 2016, it was just USD 42.9 billion despite the accession of two new member states, although in 2017, EAEU internal trade surged back up to USD 54.7 billion. The decline in trade turnover is mainly attributable to the fall in the other four member states’ exports to Russia. China, by contrast, has expanded its trade with all five countries and is now one of the region’s key economic players. The EAEU members’ exports to China rose from USD 35.1 billion in 2015 to USD 45.3 billion in 2017. It is a similar picture with imports, which increased from USD 43.8 billion in 2015 to USD 57.4 billion. [1]

The Russian economic crisis and its impacts

The reasons for this trend lie, first and foremost, in Russia’s financial and economic crisis: the sanctions imposed after its annexation of Crimea and destabilisation of Eastern Ukraine, coupled with the collapse of international oil prices, have plunged Russia into a major recession. Due to their economic interconnectedness, the crisis has had a domino effect in the other four countries. Not only have exports to Russia collapsed, but their national economies have also lost value. Kyrgyzstan has been additionally impacted by the fall in demand for foreign labour, resulting in a marked decrease in remittances by Kyrgyz labour migrants in Russia.

Making matters worse, border checks have not been abolished in their entirety. Kazakhstan in particular still regularly conducts veterinary and phytosanitary checks on imports at its border with Kyrgyzstan due to its lack of confidence in its smaller neighbour’s food standards. There were frequent border closures in recent years; in some instances, goods were turned back at the border. Disputes also erupted several times between Russia and Belarus after Belarus imported sanctioned goods from the EU into the EAEU with counterfeit Belarusian documentation. And Russia recently accused Kazakhstan of violating EAEU customs rules with its decision to extend the period of duty-free sugar imports from third countries until 2020. The Eurasian Economic Commission’s list of trade barriers in its White Paper covers a total of 39 pages.

Outlook

The narrative of prosperity, world market integration and trade expansion has been damaged by these downward economic trends. This may be one of the reasons why the Kremlin has apparently lost interest in this once prestigious project. The fact that no other country in the region has shown any interest in joining the EAEU has dented its image as an integration hub and provider of prosperity. However, a point which should not go unmentioned is that through its strong and well-staffed Economic Commission, the EAEU has gained a measure of autonomy and even without the media attention generated by the presidents of the member states, is continuing to drive integration forward. The other institutions, such as the Supreme Eurasian Economic Council (composed of the Heads of State and Government), continue to hold their regular meetings.

Nevertheless, the EAEU is lagging far behind its members’ expectations. In the longer term, its future will be determined by whether the Russian economy can make a sustainable recovery from the economic crisis and whether trade among the EAEU members regains momentum. The success of projects that were launched with great fanfare, such as the creation of a common energy market by the end of 2019, will also be of significance for the success of the EAEU itself. More free trade agreements with third countries and the resolution of the trade disputes are also required to boost the EAEU’s appeal to other countries in the region.


All the economic data are taken from the Eurasian Economic Commission’s statistical yearbook for 2018.


Ann-Sophie Gast is a researcher at ZOiS and member of the editorial board of Zentralasien-Analysen.