Last month the leaders of the Eurasian Economic Union (EAU) met in Astana, Kazakhstan, to discuss regional economic growth strategies. Despite the EAU having been launched only three months ago, the summit underscored the degree to which geopolitical struggles in the post-Soviet landscape are undermining the economic benefits of the alliance. The Union was set to represent the strength of Eurasian regional ties and offer an alternative to other free trade agreements. And yet, despite its potential and the goals it had set for itself, the alliance is showing signs of weakness and intensifying rifts between its constituents, ranging from economic interests to international political matters.

 

 

Last month the leaders of the Eurasian Economic Union (EAU) met in Astana, Kazakhstan, to discuss regional economic growth strategies. Despite the EAU having been launched only three months ago, the summit underscored the degree to which geopolitical struggles in the post-Soviet landscape are undermining the economic benefits of the alliance. The Union was set to represent the strength of Eurasian regional ties and offer an alternative to other free trade agreements. And yet, despite its potential and the goals it had set for itself, the alliance is showing signs of weakness and intensifying rifts between its constituents, ranging from economic interests to international political matters.

The challenges faced by EAU members are indeed concerning. Kazakhstan, for example, experienced a 20% loss in trade with its Customs Union partners in 2014, and its trade with EAU member states dropped another 8% percent in January, according to government statistics. President Nursultan Nazarbayev blamed recent economic pressures on “a general slowdown in the world economy and also a sharp fall in global oil and gas prices - Kazakhstan’s main exports”. Belarus experienced a 33% decrease in trade with Russia, and a 23% decrease with Kazakhstan over the course of 2014. For its part, Russia registered a decrease of almost 40% in trade with its Eurasian partners in the last three months.

 Moreover, the EAU has been the source of great frustration for Russia, as the Kremlin has been unable to direct the alliance in the political direction it wants. At the summit Nazarbayev was not shy in affirming Kazakhstan’s support for Ukraine’s territorial integrity, affirming that “it is necessary to emerge from the situation that has arisen in Ukraine via diplomatic means”, while reminding the leaders that "the sanctions adopted by the West against Russia because of the conflict, are also causing damage to the economies of Kazakhstan and Belarus." Vladimir Putin responded to Nazarbayev’s provocation by arguing for the establishment of a currency union, a proposition that both Astana and Minsk bluntly refused, wary of the Kremlin’s designs to consolidate its geostrategic interests in the region.

But dissatisfaction within the EAU does not stem only from the crisis in Ukraine or talks of monetary coordination. The deterioration in relations among member countries and their economies is rooted in the inability to reach long term agreements on trade, and setting interests valuable to the entire alliance, with the result that the project of Eurasian integration is now turning into an arena for trade skirmishes.

Following the ruble’s depreciation, Russian imports have become dramatically cheaper and are threatening sales of domestic products, resulting in the introduction of restrictions on Russian imports to Kazakhstan and Belarus. And while officially Astana and Moscow are not in a trade war, the Kazakh government has temporarily banned certain Russian food products for alleged health violations, placed a temporary embargo on Russian oil products, and is considering further restrictions on Russian car imports and metal. The Kremlin replied with its own retaliatory embargo on Kazakh food imports. Meanwhile Belarus receives Russian oil at preferential rates and refuses to sell the products of its refineries to Russia at discounted prices, an attitude best summarized by President Alexander Lukashenko’s statement that “Belarus can withdraw from the alliance as soon as it stops benefiting from it”.

The lack of consonance and coordination on the issue of trade among the three countries implies an even greater threat to the main, long-term objectives of the alliance – the creation of a single labor market, capital and services. In fact, a serious problem for all EAU members remains unemployment: the recent crisis has reduced the number of jobs throughout the region, but the opportunity to replace the existing workforce with cheap migrant labor is given legal basis through the freedom of movement of workers, a problem already worsened by Armenia’s accession to the EAU and Kyrgyzstan’s possible entry in May. The corollary of this effect could imply that the “free movement of goods, capital and labor” would be a positive stimulus for the EAU’s smaller countries and result in a deepening of the crisis and a sharpening of labor divides among ethnic lines in the greater contributors of the alliance.

In sum, a failure to find an alignment of interests, and the increasing dissatisfaction experienced by EAU members on matters regarding trade and economic development, indicates that this new economic bloc experience could be very short lived. Moscow has not been able to spin the alliance in the geopolitical direction it wished (both Astana and Minsk refused to follow Moscow and impose counter-sanctions on the European Union, and Nazarbayev has reiterated that Kazakhstan will withdraw from the bloc if it abandons its economic mission). Meanwhile, Belarus and Kazakhstan have so far reaped limited advantages from the trade agreement, being forced to protectionism, and delve into their gold and foreign reserves to support their national currencies and curb the effects of a weak ruble.

While the Union is still in its early days, the current drop in oil prices, coupled with significant trade pressures and political challenges, is directly threatening the longevity of any Eurasian integration project. In order to overcome these obstacles and for the Union to successfully reach its goals, a revision in the current framework and a realignment of interests is required. Russia must cease to view the EAU as its institutionalized sphere of influence; and Minsk and Astana should stop resorting to import restrictions and trade skirmishes to protect their economies. After all, the Union is supposed to enable trade, and the oil market is unforgiving and very impartial in administering shocks to all Eurasian economies.