Abstract
This paper analyzes the economic and political situation in the Eurasian Economic Union. The basic question is why it was created after the failure of all previous integration projects in the Commonwealth of Independent States and Central Asian region? The paper examines the effects and opportunities for the regional economy of economic sanctions imposed on Russia and of Russian counter-sanctions. It also analyzes relations between the Eurasian Economic Union and the European Union and draws perspectives and policy implications for their future relations.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
President Nazarbayev voiced the idea of the Eurasian Union of States for the first time at Lomonosov Moscow State University, during his first official visit to Russia on March 29, 1994. In June 1994, a detailed integration project was submitted to the Heads of the States and then published in the press; for the first time, the integration alliance was called “the Eurasian Union” in an official document. In 1995 Belarus, Kazakhstan and Russia signed the Treaty on the Customs Union. The Treaty signed by the three states created the integration nucleus that now drives integration in the Eurasian region. In 1996 with the participation of Kyrgyz Republic they signed the Treaty on Deepening Economic and Humanitarian Integration in Moscow. Tajikistan joined the Treaty in 1998. In 1999 the presidents of five countries signed the Treaty on the Customs Union and Single Economic Space in Moscow.
According to a large-scale survey published by the Eurasian Development Bank (EDB 2015a), the formation of the customs union was supported by 80 % of the respondents in Kazakhstan, 78 % in Russia, 60 % in Belarus and 56 % in Armenia. These results could be explained by Soviet nostalgia (mainly in economic turmoil periods), social ties such as existence of relatives and friends in other countries, and common media based on Russian language (Libman and Vinokurov 2014, p. 344).
Belarus is interested in obtaining Russian crude oil for its oil refineries and exports their production to Europe. Russia imposes export duties on crude oil for protection of its own oil refineries. Belarus considered the abolition of these duties or the redistribution of the revenue from the duties as a precondition for any further integration steps. This issue played a major role when the customs union was initiated in 2010. In 2014, Belarus again put similar request, threatening not to sign the EAEU treaty in May if its conditions were not fulfilled. The result of these negotiations has been a new settlement, giving Belarus substantial access to the revenue from oil duties. Kazakhstan blocked the inclusion of any political aspects in the EAEU treaty: even relatively symbolic institutions typically existing in most international organizations like an inter-parliamentary assembly were not established within the EAEU due to a firm position of Kazakhstan (Libman 2015).
The Nagorno-Karabakh conflict keeps Azerbaijan and Armenia in a state of de jure war and challenges regional security. The EU had to keep neutrality over the conflict due to its interest on cooperation both with Armenia and Azerbaijan. Since Azerbaijan, Turkey and Georgia have taken steps to strengthen political, economic and security cooperation, Armenia has become further isolated and more dependent on Russia (Paul 2015). Negotiations were conducted between Armenian and Russian presidents on the basis of trade-offs between Moscow’s desire to see Armenia join the EAEU and Yerevan’s demand for security guarantees from Moscow (Cadier 2014, p. 80).
Limited sanctions were found to reduce bilateral two-way merchandise trade by an average of 27 %, the reduction from moderate sanctions was 36 %, and severe sanctions diminished bilateral trade flows by an average of 91 % (Elliot and Hufbauer 1999, p. 406). The cost of the United Nations and the US sanctions versus Iraq has been estimated at 48 % of Iraq’s GNP, with a particularly heavy burden on the incomes and mortality of the poorer segment of the population. The 1980 US embargo on grain exports to the Soviet Union was the classic case of economic sanctions gone awry. The embargo did raise the price of grain to the Russians by an estimated $225 million, but the Soviets were able to turn to other sources, and the price increases did not dissuade them from their Afghanistan adventure. The direct cost of the sanctions to the United States has been estimated at $2.3 billion, but the total costs were arguably much higher. American farmers lost their dominant market share in grain imports to the USSR, and due in part to Russian fears of becoming dependent on producers subject to the political whims of the US government, they have never recaptured that position (Davis and Engerman 2003). Trade sanctions’ impact on Iran’s non-oil exports and capital goods imports have been significant compared to their effect on Iran’s oil exports. The financial sanctions’ impact on Iran has been greater than that of the trade sanctions as they have curtailed Iran’s ability to borrow funds and to finance its oil development projects and Iran has paid higher rates of interest on its loans and has guaranteed excessively high rates of return on investment on its oil buyback projects. Torbat (2005, p. 432) estimated the trade and financial sanctions’ cost to Iran to be about 1.1 % of Iran’s GDP.
The World Bank (2015a) draws three medium-term scenarios for Russian economy, which will be mainly dependent on oil prices. If oil prices are in the US$53–57 per barrel interval (baseline scenario), Russia’s GDP growth will be −3.8 and −0.3 % in 2015 and 2016 respectively. If oil prices achieve US$66–69 per barrel (upper-bound oil price scenario), the GDP growth will be −2.9 and 0.1 %, and if oil prices are equal to US$45–50 per barrel (lower-bound oil price scenario) Russia’s growth will be −4.6 and −1 % in these years.
Introduction of sanctions led to a massive increase of smuggling activity from the EU to Russia, using Belarus’ entry points. To limit these informal imports, Russia re-introduced checks at the Belarus border which caused dissatisfaction of Belarus and it responded with introducing its own restrictive measures, de-facto restoring customs control at the joint border and even blocking transit goods from Kaliningrad enclave to Russia.
Uzbekistan became a CSTO member in 2006 and suspended its membership in 2012. Uzbekistan joined EurAsEC in 2006, and suspended its membership in 2008 (Laruelle and Peyrouse 2012).
References
Baldwin R (1997) The causes of regionalism. World Econ 20(7):865–888
Benini R, Plummer MG (2008) Regionalism and multilateralism: crucial issues in the debate on RTAs. Econ Change Restruct 41:267–287
Bhagwati J (1992) Regionalism versus multilateralism. World Econ 15(5):535–556
Cadier D (2014) Eastern partnership versus Eurasian union? The EU–Russia competition in the shared neighbourhood and the Ukraine Crisis. Global Policy 5(1):76–85
Cwiek-Carpowicz J (2012) Russia’s gas sector: in need of liberalization in the context of the shale gas revolution and energy relations with the European Union. J East West Bus 18:54–65
Dabrowski M (2008) Economic relations between the EU and CIS (an overview). Probl Econ Transit 50(12):46–70
Davis L, Engerman S (2003) History lessons: sanctions: neither war nor peace. J Econ Perspect 17(2):187–197
Dragneva-Lewers R, Wolczuk K (2015) Trade and geopolitics: should the EU engage with the Eurasian Economic Union? European Policy Centre Policy brief http://www.epc.eu/documents/uploads/pub_5462_trade_and_geopolitics.pdf. Accessed 15 April 2015
EDB (2013) Armenia and the Customs union: impact of economic integration. Eurasian Development Bank Centre for Integration Studies, Report 20
EDB (2015a) EDB integration monitor, Eurasian Development Bank Centre for Integration Studies Report 33
EDB (2015b) An assessment of the economic effects of lifting non-tariff barriers in the EEU. Eurasian Development Bank Centre for Integration Studies Report 29
Elliot KA, Hufbauer GC (1999) Same song, same refrain? Economic sanctions in the 1990’s. Am Econ Rev 89(2):403–408
Eurasian Economic Commission (2014) Mutual trade in goods of the Customs Union and Common Economic Space members for 2013. Statistical bulletin. http://www.eurasiancommission.org/ru/act/integr_i_makroec/dep_stat/tradestat/publications/Documents/Int_2013.pdf. Accessed 2 Dec 2015.
Fernandez R (2011) Nabucco and the Russian gas strategy vis-a-vis Europe. Post Communist Econ 23(1):69–85
IMF (2015a) Kyrgyz Republic: impact of accession to the Eurasian Economic Union, pp 1–48
IMF (2015b) Russian Federation IMF Country Report No. 15/211
Isakova A, Plekhanov A (2012) Customs Union and Kazakhstan’s imports. European Bank for Reconstruction and Development, pp 1–22
Kim Y, Blank S (2013) Same bed, different dreams: China’s ‘peaceful rise’ and Sino-Russian rivalry in Central Asia. J Contemp China 22(83):773–790
Kratochvil P, Tichy L (2013) EU and Russian discourse on energy relations. Energy Policy 56:391–406
Laruelle M, Peyrouse S (2012) Regional organizations in Central Asia: patterns of interactions, dilemmas of efficiency. University of Central Asia, Institute of Public Policy and Administration, Working Paper No 10, pp 1–56
Lavrov S (2013) State of the Union Russia–EU: prospects for partnership in the changing world. J Common Mark Stud 51:6–12
Libman A (2015) Ukrainian Crisis, Economic Crisis in Russia and the Eurasian Economic Union. Munich Personal RePEc Archive Paper No. 63861
Libman A, Vinokurov E (2014) Do economic crises impede or advance regional economic integration in the post-Soviet space? Post Communist Econ 26(3):341–358
Mogilevskii R (2012) Customs Union of Belarus, Kazakhstan and Russia: trade creation and trade diversion in Central Asia in 2010–2011. University of Central Asia, Institute of Public Policy and Administration, Working Paper No 12, pp 1–44
Mukhamediyev B, Khitakhunov A (2015) European Union and Eurasian Economic Union trade relations and their impact on Kazakhstan. Macrotheme Rev 4(3):44–54
Paul A (2015) The Eastern partnership, the Russia–Ukraine war, and the Impact on the South Caucasus. IAI working papers 15. http://www.iai.it/sites/default/files/iaiwp1506.pdf. Accessed 15 April 2015
Pomfret R (2001) The economics of regional trading arrangements. Oxford University Press, Oxford UK
Pomfret R (2009) Regional integration in Central Asia. Econ Change Restruct 42:47–68
Pongas E, Todorova A, Gambini G (2014) Statistical analysis of EU trade in energy products, with focus on trade with the Russian Federation. http://ec.europa.eu/eurostat/statistics-explained/extensions/EurostatPDFGenerator/getfile.php?file=193.206.22.235_1429796950_19.pdf Accessed 24 April 2015
Rotman D, Veremeeva N (2011) Belarus in the context of the Neighbourhood Policy: between the EU and Russia. J Communist Stud Transit Polit 27(1):73–98
Sapir A (2011) European integration at the crossroads: a review essay on the 50th anniversary of Bela Balassa’s theory of economic integration. J Econ Lit 49(4):1200–1229
Schmidt-Felzmann A (2011) EU member states’ energy relations with Russia: conflicting approaches to securing natural gas supplies. Geopolitics 16:574–599
Torbat AE (2005) Impacts of the US trade and financial sanctions on Iran. World Econ 28(3):407–434
UNDP (2005) Central Asia human development report: regional cooperation for human development and human security. United Nations Development Programme, Bratislava
Van Der Meulen EF (2009) Gas supply and EU–Russia relations. Eur Asia Stud 61(5):833–856
World Bank (2012) Assessment of costs and benefits of the Customs Union for Kazakhstan. Report No. 65977KZ. https://openknowledge.worldbank.org/bitstream/handle/10986/2722/659770ESW0P1230on0Final0jan0302012.pdf?sequence=1. Accessed 25 April 2015
World Bank (2014) Kazakhstan: growth slows as external pressures rise. http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2014/11/04/000442464_20141104134153/Rendered/PDF/922290WP0Kazak00Box385354B00PUBLIC0.pdf. Accessed 16 April 2015
World Bank (2015a) Russia Economic Report. The Dawn of a New Economic Era? Report No 33. http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/12/000333037_20150413141814/Rendered/PDF/956970NWP00PUB0B0WB0RER0No0330FINAL.pdf. Accessed 18 April 2015
World Bank (2015b) Migration and remittances: recent developments and outlook. Migration and Development Brief 24. Special topic: financing for development. http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief24.pdf. Accessed 25 April 2015
WTO (2010) World tariff profiles. https://www.wto.org/english/res_e/booksp_e/tariff_profiles10_e.pdf. Accessed 10 April 2015
WTO (2013) Trade policy review The Kyrgyz Republic. https://www.wto.org/english/tratop_e/tpr_e/s288_e.pdf. Accessed 5 Dec 2015
WTO (2014) World tariff profiles. https://www.wto.org/english/res_e/booksp_e/tariff_profiles14_e.pdf. Accessed 10 April 2015
Yang J, Askari H, Forrer J, Zhu L (2009) How do US economic sanctions affect EU’s trade with target countries? World Econ 32(8):1223–1244
Zhao T (2010) Sanction experience and sanction behavior: an analysis of Chinese perception and behavior on economic sanctions. Contemp Polit 16(3):263–278
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Khitakhunov, A., Mukhamediyev, B. & Pomfret, R. Eurasian Economic Union: present and future perspectives. Econ Change Restruct 50, 59–77 (2017). https://doi.org/10.1007/s10644-016-9182-1
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10644-016-9182-1