economic integration

Towards a Eurasian federation?

Russia, Belarus and Kazakhstan finalise their customs union

As of 1 July, Russia, Belarus and Kazakhstan are operating under a full customs union. The Customs Union of Belarus, Kazakhstan and Russia, as is the official name of the entity, started functioning on 1 January 2010 with the introduction of a single customs tariff with the aim of boosting trade and investment in the region by opening it up to greater competition. This was followed on 1 July 2010 by a common ‘Customs Code’ that removed customs checks on the majority of goods traded between the three states. In the present, third phase, the whole process was finalised by removing custom border checkpoints that still controlled the goods flowing into the union from third countries. Passport controls and immigration authorities will remain in place, but the countries are establishing a working group to simplify passport and visa procedures. An overview of all the customs integration phases can be seen on the table from RIA Novosti below.

An overview of the essential facts about the Customs Union of Belarus, Kazakhstan, and Russia
Briefing on the new Customs Union of Belarus, Kazakhstan, and Russia. © RIA Novosti, 2010

The Customs Union and Europeans

What can Europeans expect from these unification efforts of the Eurasian troika? For those who hope that one day international affairs will be better off when centred around multiple regional poles, which would be politically, socially and economically integrated on the basis of their shared identity, the Russia-lead regional efforts are clearly a much welcomed step. Indeed, it is one of the main tenets of the European Strategist to endorse such very efforts. And notwithstanding recent disputes between Belarus and Russia, it seems that the creation of the customs union will move the region a few steps closer to a hypothetical ‘Eurasian federation’ of the Commonwealth of Independent States, as is a long-time dream of Kazakh president Nursultan Nazarbayev and several other visionaries.

From this it proceeds that the Europeans should bear in mind at least three points when following new developments in the region. First, the integration efforts are not yet complete. The parties stress that the customs union will allow them to proceed with the next stage of the integration in creating a common economic space (by 1 January 2012) with the free movement of goods, services and labour. This would create a major economic zone of about €1,473 billion of nominal GDP,1 or roughly about 12 % of the EU-27’s GDP of €12,683 billion.2 The initiative further proposes to unify the countries’ taxes (quite many Russian commentators applaud this step, because they fear that the customs union without common tax rates might lead to companies leaving the country to their neighbours, mainly to Kazakhstan),3 and establish common and trade monetary policies. Indeed, swiftness with which the Russians and its partners move is even more commendable when one considers that any effort to harmonise diverse tax regimes in the EU’s member states would be a political impossibility: even the Commission’s initiative to create a so-called Common Consolidated Corporate Tax Base (“CCCTB”) is being met with a considerable opposition, although it is being prepared in various working groups for last 7 years.

Second, the move is also another clear signal that in the follow-up to the 2008 financial crisis, Moscow is changing its economic policies in the former Soviet space. New York Times observed already a year ago that whereas formerly, Russia relied on its hard currency reserves to gain from its neighbours political favours by providing them with loans and direct subsidies of fuel, the new policy aims at elevating the economic prospects of the entire region with Russia as a natural gravity well.4 In the short term, Russian farmers and steel workers might lose in the competition with Belarus and Kazakhstan, but over time, it is assumed that Russian banks will benefit from gaining access to Belarus’ backward, Soviet-style economy, which is currently on the way towards privatising its major services and industries. Moscow will thus reinforce its role as the region’s financial and business centre and even more increase the allure of its domestic market for other neighbouring countries. Indeed, Kyrgyzstan and Tajikistan are already bidding for the membership.

Putin’s and Medvedev’s greater openness to their country’s economic integration has also a strong European dimension, as they would hope to extend the free trade partnership also to the EU and other EFTA countries. Here, however, they will not get any further without the co-operation of EU’s political leaders, which is lacking. The EU’s politicians are now on one hand much more concerned with the financial problems of the eurozone and, on the other, lack strategy and political will for leading a strong, common EU-Russian foreign policy.

A special status of Ukraine

Third, Ukraine continues to be a ‘blackjack’ of the geopolitical game between Russia, NATO and the EU, whose allegiance remains for the time being unclear. After the election of Viktor Yanukovych, who succeeded the Atlanticist Viktor Yushschenko, it was widely perceived as a Moscow’s triumph. Subsequent events, when he agreed to prolong the lease for Russia of the naval base in Sevastopol and declared that Ukraine will not bid for the NATO membership, seemed to have confirmed the fears of all uncritical Euro-Atlanticists. When the Russian daily newspaper Kommersant revealed a document describing the present Ukrainian government’s plan to develop close relations with NATO, if not seek the outright membership, it came as a shock both to the Atlanticists and Kremlin. Yanukovych is therefore a pragmatist who is above of all ‘pro-himself’.

So far, Yanukovych claimed that he seeks ‘association’ and free trade with the EU, but with the Russian strategic and cultural interests in Ukraine, Moscow will be putting increasing pressure on Kiev to join its customs union instead. In particular, Alexey Miller, CEO of Gazprom, implied that by the end of 2011, the price of natural gas for Ukraine might grow to an astronomical figure of $500 per thousand cubic meters. Is cutting off the subsidies a legitimate instrument of foreign policy? No doubt, although its ethicality is dubious at best. More seriously, one can doubt whether the ‘hard man’ attitude will serve Moscow’s interests in the long term, because such threats will rather repulse the Ukrainians from the Russian customs union then convince them of its benefits. Indeed, it is outright incompatible with the Russian latest effort to integrate its neighbourhood economically, as discussed above.

The EU cannot, however, engage in wishful fancies of Ukraine’s joining the EU under conditions that would be unacceptable to Kremlin, an event that would both endanger the EU-Russian strategic economic ties and cause instability in the region. Similarly, supporting further expansion of NATO is out of question beforehand: even if one leaves aside the fact that it would have much more detrimental effect on the EU-Russian relations that the Union membership bid (which is a fact independent of the perceived legitimacy or illegitimacy of the Alliance’s continuing expansion), NATO is a side arm of Washington foreign policy and therefore unacceptable for anyone who is serious about striving for a sovereign Europe. Besides, as the recent poll suggest, no more than a third of the Ukrainians support the NATO membership.5 If the foundation and standard on which international relations should be built is therefore political self-determination and multipolarity, rather than hegemony or any efforts at ‘civilising missions’, the EU and Russia will have to get down to one table and reach such agreement on Ukraine that will start from what the Ukrainians want themselves. At the same time, the deal will have to be acceptable to all the three sides. To imagine what it might look like is premature, but it is possible that the Russian ethnic minority in Ukraine would seek to build strong ties with the Russian, while the ethnic Ukrainians would look towards the EU. Preferably, this should be complemented by restarting the efforts at Euro-Russian strategic partnership and thus proceed along the way that would offer economic, social and strategic benefits to everyone in Europe without the destructive zero-sum logic of ‘either Kremlin or Brussels’.

Having said that, it is clear that the new Customs Union of Belarus, Kazakhstan and Russia will play a key role in the region in the next few years. For the time being, the Europeans will do well to remember these three tenets in mind: it will continue on, signals a change in Russia’s neighbourhood policy, and Ukraine will be the main unknown in the geopolitical game. Will the EU and European political elite prepare a common and adequate foreign policy that would respect these stakes? That is to be doubted. But no matter, that is no reason for analysts not to keep trying for their voice to be heard and hope that after the euro zone problems get solved, European political representatives will gradually turn outwards to their partners and use the economic initiatives such as the Customs Union for their shared benefit.

Show 5 footnotes

  1. IMF World Economic Outlook Database, April 2011. Exchange rate used for the calculations: 1 EUR = 1.4464 USD (ECB data for April 2011).
  2. Eurostat forecast from July 2011 for 2011.
  3. E. g. Коммерсанть FM, ‘Таможенный Союз Стер Границы’, Коммерсанть, 7 January 2011 <> (accessed 1 July 2011).
  4. Andrew E. Kramer, ‘Russia, Belarus and Kazakhstan Form Customs Union’, The New York Times, 5 July 2010, section Business Day / Global Business <> (accessed 1 July 2011).
  5. Kramer.