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Eurasian economic integration and relationship of Russia with former Soviet republics

Explore the historical background, current state, and key organizations driving economic integration between Russia and former Soviet republics. Learn about trade relations, foreign investment cooperation, Commonwealth of Independent States (CIS), and more.

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Eurasian economic integration and relationship of Russia with former Soviet republics

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  1. Eurasian economic integration and relationship of Russia with former Soviet republics Svetlana Ledyaeva Aalto BIZ

  2. Learning outcomes Main directions and organizations of integrationbetweenFormerSovietStates History of Eurasianintegration Currentstate of Eurasianintegration Trade betweenRussia and FormerSovietStates ForeignInvestmentcooperationbetweenRussia and FormerSovietStates

  3. Russia is a member of the Commonwealth of Independent States (CIS) (3)

  4. The Commonwealth of Independent States (4) Soviet Union collapsed in 1991. Now-former republics created the Commonwealth of Independent States (CIS) in 1991. The CIS: • A means to manage the divorce among the neighbors (Carol R. Saivetz2012); • Represents “cooperation without integration” (Pogrebinsky, 2011). Each year there were summits of presidents, of defense ministers, and of foreign ministers. Avehicle for economic integration, for political integration, or for joint defense operations?

  5. The Collective Security Treaty Organization (CSTO) (5) Designed to be a joint military force. Has revived military cooperation between Russia and the individual state’s military industrial complexes, particularly in Kazakhstan, Kyrgyzstan, and Tajikistan. To most observers- “simply a Russian and Kazakh force”. As a collective military, the CSTO is intended to be both comparable to NATO and a counterbalance it.

  6. The Shanghai Cooperation Organization: security and economics (6) The Shanghai Cooperation Organization was founded in 1996 to deal with border issues between Russia and China and between China and the newly independent states of Central Asia. Russia, China, Kazakhstan, Kyrgyzstan and Tajikistan formed the Shanghai-five grouping. 2000 – inclusion of Uzbekistan. Russian military doctrine posits NATO expansion as the primary threat to Russia’s national security. China, too, has been concerned about the long-term US presence in the region. Thus, the two heavyweights of the organization pushed the SCO to become a countervailing force to NATO in global politics.

  7. Eurasian Economic Community and customs union: history (7) Russia has also tried to create a common market among the post-Soviet states. The CIS member states first signed a free-trade agreement in 1994. Yet, it was only in 2000 that five states, Russia, Belarus, Kazakhstan, Tajikistan, and Kyrgyzstan created the Eurasian Economic Community- a political platform for economic integration (Trenin, 2011). The goal was the creation of a common economic space. A formal agreement was signed between Russia, Belarus, and Kazakhstan in 2007 that created the Customs Union Commission (CUC) to oversee key issues of integration.

  8. Eurasian Economic Community and customs union: history (8) Harmonization of legislation in December 2008 on: • customs procedures and regimes, • procedures for goods customs declaration, • the formation of a legal environment for a Customs Union within the EurEcCom. The Customs Union went into effect on January 1, 2012. It includes: Russia, Belarus and Kazakhstan.

  9. Eurasian Economic Community and customs union: history 2 (9) A treaty aiming for the establishment of the EAEU was signed on 29 May 2014 by the leaders of Belarus, Kazakhstan and Russia, and came into force on 1 January 2015. Treaties aiming for Armenia's and Kyrgyzstan's accession to the Eurasian Economic Union were signed on 9 October 2014 and 23 December, respectively. Armenia's accession treaty came into force on 2 January 2015. Kyrgyzstan's accession treaty came into effect on 6 August 2015.

  10. Structuralevolution of EurasianEconomicUnion (10)

  11. Eurasian integration at present: institutions (11) ASTANA Capitals of Eurasian Union: Astanaand Omsk. Eurasian Development Bank (Almaty, 2006); Eurasian Business Council (Moscow, 2008); Eurasian Media Forum (Almaty, 2001); Eurasian Association of Universities (Moscow, 1989/1992); Eurasian Association of scientists (Astana, 2008). L.N. Gumilyov Eurasian National University (1996), Astana, Kazakhstan OMSK

  12. Eurasian Union: achievements and threats? (12) Already achieved: • Freedom of movement of goods. • The Eurasian commission (2012) – is a fully functioning supranational organization. Threats: • Larger and more competitive Russia – can swallow up Belarus and Kazakhstan. • Hence, no much desire for a larger integration from Belarus and Kazakhstan.

  13. Eurasian Union: different official opinions (FIIA meeting in 2014 in Helsinki) (13) Nazarbaev (president of Kazakhstan) opinion: Eurasian commission is too pro-Russian (i.e. decision making is dominated by Russia). EvgenyVinokurov, Director of the Centre for Integration Studies, Eurasian Development Bank: Russia does not dominate; consensus within the Eurasian commission. NargissKasenova, Professor at KIMEP University • Kazakhstan wants to go to global markets. • Russia seems to want opposite, at least now.

  14. Eurasian integration at present (14) The Customs Union – a big step in regional integration by removing all barriers to trade, capital, and labor movements between the membercountries. 68 technical standards – to replace former soviet state standards. Approved by WTO. Russian language – official language. Only those countries where Russian language is widely used can join the Union.

  15. Eurasian integration: future (15) 2016Common market for medical products. common Eurasian medical device and pharmaceutical regulations formally came into force in January 2016. 2019 Common electric power market. 2025 Supranational regulatory authority for financial market; Common market for gas, oil and petroleum.

  16. Eurasian integration: what is the purpose of it? (16) Questionnaire results (Moscow, Astana, Minsk, Almaty; by Sean Roberts, 2014): • They want economic union. • No parliament, no monetary union, no politics. • Building regionalism as an aim – deepening and widening integration. What is the interest by country? • Belarus – access to Russian market, gradual modernization without exposure to globalized economy. • Kazakhstan – access to Russian market, modernization, increased competitiveness ahead of WTO membership. • Russia – mostly geopolitical interests.

  17. Eurasian integration: Belarus (17) Belarus was lured into union because its economy was in trouble and because it needed loans, and reduced oil and gas prices. Belarus is Russia’s largest trading partner in the CIS. With large imports of energy from both Russia and Kazakhstan. And exports of agricultural and heavy industrial goods (including tractors and trucks) to its fellow Customs Union members.

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  19. Similarity index between Russia and Belarus in trade (19) Similarity index: 0-100% of similarity. Export 2000: 61% 2013: 61% Import 2000: 70% 2013: 67%

  20. Eurasian integration: Russia and Kazakhstan (20) The similarity of output between the two largest countries—Russia and Kazakhstan—with their dependence on natural resources, a warning sign for increased integration. The natural resources that both Kazakhstan and Russia hold have translated into a high reliance on resource-based outputs. However, in nearly every commodity, Russia holds an absolute advantage. Co-dependence on prices for primary energy commodities would mean that both countries are synchronized in their boom/bust cycles. Is there enough differentiation in the economies of Kazakhstan and Russia to make easier trade translate to growth and improved outcomes?

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  22. Similarity index between Russia and Kazakhstan in trade (22) Similarity index: 0-100% of similarity. Export 2000: 80% 2013: 92% Import 2000: 73% 2013: 83%

  23. Eurasian integration: Divergence in policies (23) Divergence in policies: Monetary or exchange rate policies, which have moved somewhat independently since the Russian crisis of 1998—1999. • Belarus uses a state-administered exchange rate policy allowing for multiple rates, • Kazakhstan has focused on inflation targeting via the interest rate for its monetary policy, • Russia targets money supplies for both inflation and exchange rate management.

  24. Eurasian integration: Trading across borders (Doing Business 2016-2017) (24)

  25. Eurasian integration: Financial sector (25) The governmental approach to financial sector development in the three Customs Union countries appears to have major commonalities. A lack of liberalization of financial systems pervades the region. This tight state control may be the sole source of any financial convergence that has occurred as only Russian and–— in some cases–—Kazakh banks have really penetrated the region.

  26. Eurasian integration: labor markets (26) Labor costs in Kazakhstan are much more competitive than in Russia or Belarus. Kazakhstan’s labor productivity higher than in Russia but lower than in Belarus. These differences can allow companies to take advantage of increased integration across the three countries.

  27. Eurasian integration: prospects for the other CISs (27) While the absolute volumes of both imports and exports have been on the rise in the CIS (apart from Tajikistan, which has had declining exports since 2000), The proportion of trade that has occurred within the CIS realm has been declining.

  28. Change in relative volume of trade in the CIS, %, bw 2000 and 2010 (28)

  29. Eurasian integration: prospects for the other CISs (29) The area where integration and trade seem to be on the rise is energy, which is, again, dominated by Russia and Kazakhstan (but also includes oil-rich Azerbaijan). Another area in which integration actually exists (but only in one direction) is in the movement of people from the periphery of the CIS to Russia. The vast majority of emigrants from CIS countries go to work in Russia. Migration to Russia: usually only one family member lives in Russia and sends money back. Indeed, these remittances support many of the economies of the CIS countries, with Tajikistan, Moldova, and the Kyrgyz Republic having more than one-third of their economies reliant on remittances.

  30. FreeTrade Agreements of EurasianEconomicUnion (30) FTA between the EAEU and Vietnam (first external FTA of EAEU) entered into force on October 5. In force since 2012, the multilateral CIS FTA established between Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia (now all EAEU member states), as well as Ukraine, Uzbekistan and Moldova. Russia has suspended the Agreement with respect to Ukraine from 1 January 2016. Negotiations on FTA – Israel, Turkey, Egypt, Iran. Specialagreementwith China.

  31. Eurasian customs union and Ukraine (31) Equal pressure has been applied to Ukraine, and many commentators question the value of the Customs Union unless it includes Ukraine. Presidents Medvedev and Yanukovich agreed to an extension until 2042 of the Russian Black Sea Fleet base in Sevastopol in return for a thirty percent reduction in the price of natural gas. Throughout 2011, Yanukovich simultaneously begged Russia for gas price concessions and pursued closer economic ties with the European Union. Russia repeatedly made clear that price reductions would be made only if there were a merger between Gazrpom and Naftohaz Ukraine and/or if Ukraine were to join the Customs Union.

  32. Eurasian customs union and Ukraine (32) Vladimir Putin was open about Russian concerns. He stated: “If Ukraine creates a free-trade zone with the EU, we will have to start building a border.” (UkrayinaMoloda, 2011).

  33. Ukraine: The elephant in the room (33) Why Ukraine was important? It is the second-largest country in the CIS, which would automatically bring a much larger market to the Union than, say, tiny Tajikistan. Ukraine’s position adjacent to both the European Union (EU) and Russia can make it a conduit for Customs Union goods to Europe . Ukraine’s economy is not based on extractive industries but is much more diversified. There could be many more opportunities for trade between Ukraine and other countries in the Union than among the countries that currently belong.

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  35. Similarity index between Russia and Ukraine in trade (35) Similarity index: 0-100% of similarity. Export 2000: 46% 2013: 31% Import 2000: 61% 2013: 70%

  36. But what is better for Ukraine? (36) The advantages for the Customs Union may not translate into similar advantages for Ukraine itself. Simulations have noted that Ukraine already somewhat over-performs in trade with the CIS and underperforms in EU trade than what would be predicted by gravity models (Shepotylo, 2009b). Country’s heavy energy dependence on Russia. Ukraine’s energy needs are driven by its highly inefficient Soviet-era heavy industries (e.g., steel), which comprise a large proportion of its exports. Free trade is pursued toward the EU, there is a chance that Ukraine’s economy could finally become more market oriented, saving on energy and moving into services or other industries that are more appropriate.

  37. Two different directions for Ukraine (37) 1. Joining the Eurasian Union and seeing lower energy prices. This path may be easier but could lead to lower growth in the long run and could preclude other opportunities to the West. 2. Take a chance on orienting westward and allowing the economy to develop in response to the new set of incentives that will be created by this change. However, the danger in turning westward, beyond worries about energy usage, also include the EU’s current turmoil and the (not unfounded) fear in Ukraine that it will be the EU’s ‘perennial/everlasting neighbor’ (Molchanov, 2004).

  38. Eurasian Union and Asia (38) An implicit goal in creating the Eurasian Union that it would eventually also encompass Tajikistan and Uzbekistan. Not very large potential for trade within the Union. ‘‘The land-locked nature and high dependence on natural resources of those countries suggest the impossibility of increasing trade by creation of an agreement’’ (Kurmanalieva & Vinokurov, 2011, p. 8).

  39. Looking east. . . or west? (39) The relationship of the new Eurasian Union to the old EU? CIS trade with the EU has underperformed since the collapse of the Soviet Union. The trade that has occurred with the EU has mostly been in the form of energy, with little movement toward diversification. Must seek to become a complement to rather than an alternative for the EU. The worst-case scenario would be to have two opposing trading blocs facing each other across a divide drawn between Poland and Belarus, each protected by high tariffs and focused on inward rather than outward trade.

  40. Eurasian Union: Latestfacts (40) Population 1 Jan 2016: 182,7 millionpeople GDP in 2014 – 2,2 trillion USD Industrial production in 2014 – 1,3 trillion USD Foreigntradewiththridcountries – 877,6 billion USD (3,7% of World export; 2,3% of World import).

  41. Trade of Russia with FSU countries: Part 2, Statistical

  42. Russia`s trade volume (export plus import) with Belarus and Kazakhstan in 1996-2014, million USD (42)

  43. Belarus trade volume (export plus import) with Kazakhstan and Russia in 1998-2014, million USD (43)

  44. Kazakhstan trade volume with Belarus and Russia in 1996-2014, million USD (44)

  45. Export to Russia in 1996-2015, million USD (45)

  46. Average export to Russia in 1996-2015, million USD (46)

  47. Import from Russia in 1996-2013, million USD (47)

  48. Average import from Russia in 1996-2015, million USD (48)

  49. Trade balance (Exp min Imp) with Russia in 1996-2015, million USD (49)

  50. Industrial structure of selected FSU countries` export to Russia, as cumulated in 2000-2013 (50)

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