August 26, 2014

Analysis of the State and Prospects of Development of the Eurasian Economic Union

1. Analysis of imbalances of the economic cooperation of CU/CES at the present stage

2. Strategic risks and scenarios for the development of the Eurasian Economic Union

  2.1. External risks

  2.2. Internal risks

  2.3. Strategic development scenarios of the Union

3. Prospects for certain post-Soviet countries' joining the EAEU

  3.1. Armenia

  3.2. Kyrgyzstan

  3.3. Tajikistan

4. Negative consequences of deepening of integration processes within the framework of the EAEU for Ukraine and ways to overcome them

May 29, 2014 the Presidents of Russia, Belarus and Kazakhstan signed an agreement on the establishment of the Eurasian Economic Union (EAEU), as the next phase of economic integration of the three countries after the Customs Union (CU) and the Common Economic Space (CES). According to the document, the three States guarantee free movement of capital, goods, services and labor within the EAEU, lead a coordinated, coherent and unified economic policy. The Treaty shall enter into force on 1 January 2015. Intentions to join the validity of the contract have been expressed by the leaders of Armenia, Kyrgyzstan and Tajikistan.

 

Структура внешней торговли товарами Украины в I полугодии 2014 г
The structure of Ukraine's foreign trade in the 1st half of 2014
http://www.ibser.org.ua/

Further deepening of integration within the Eurasian Union will have a direct impact on Ukraine. This is due to the fact that Ukraine is now one of the largest trading partners of the Customs Union/Common Economic Space — the Russian Federation, Belarus and Kazakhstan.

In 2013, in the geographical structure of Ukrainian exports the share of the three countries accounted for almost 32 % (20.08 billion US dollars), while imports from them reached 39 % of the import of goods to Ukraine (30.02 billion US dollars). At this, almost 73 % of the negative trade balance of Ukraine last year had been formed exactly due to the imbalance of foreign trade with the CU/CES (9.94 billion US dollars). The same imbalance of mutual trade for Ukraine remains in the current year. At this, the current state, prospects, problematic aspects of the relationships of the Customs Union and their impact on the domestic economy of Ukraine will remain relevant after its transformation into the Eurasian Economic Union.

1. Analysis of imbalances of economic cooperation of CU/CES at the present stage

Analysis of indicators of foreign economic cooperation of the Customs Union shows that for the period of functioning of union, mutual trade turnover of member countries has grown by more than 36 % (from 47.1 billion US dollars in 2010 to 64,1billion US dollars in 2013). The structure of mutual trade turnover has improved – the share of energy products has declined from 41 % in 2011 to 33 % in 2013, share of machinery and equipment in 2013 exceeded 20 %. At the same time, in recent years positive dynamics of the external economic development of the countries participating in the CU/CES has decreased. Have been reduced the volumes of foreign trade (from 934.6 billion US dollars in 2012 to 931 billion US dollars in 2013) and bilateral trade (from 67.9 billion US dollars in 2012 to 64.1 billion US dollars in 2013).

According to the results of the 1st half of 2014, the state of mutual trade among the member countries of the CU/CES has also deteriorated. This situation is due to the decline of economic cooperation with third countries and the impact of the West's sanctions against Russia. Thus, by the results of 6 months of the current year, the volume of interstate commerce of the CU/ CES member-countries had decreased by 11.7 % (to 27.6 billion US dollars) compared with the same period of 2013. At this, Belarus and Kazakhstan have a negative balance within the association (-3 billion US dollars and — 4 billion US dollars, respectively).

Динамика объемов взаимной торговли стран-участниц ТС/ЕЭП в I полугодии 2014 г.
The dynamics of the mutual trade of the participating countries of the CU/CES in the 1st half of 2014
http://www.eurasiancommission.org/

In the I half of 2014 had also decreased the total volume of foreign trade of the participating countries of the CU/CES with other countries — by 1.6 % (to 442.1 billion US dollars), including the exports had made — 288.2 billion US dollars, imports — 153.9 billion US dollars. The exports of goods had increased by 0.7 % or by 1.9 billion US dollars, imports had decreased by 5.5 %, or 9 billion US dollars. The cumulative foreign trade surplus of all the countries of the association (primarily at the expense of Russia) had amounted to 134.3 billion US dollars. In the overall structure of foreign trade of the CU/ CES, Russia's products make 83.6 %, Kazakhstan's — 11.9 % and Belarus' — 4.5 %.

The share of the domestic market in the total structure of the trade continues to decline and now stands at 11.1 % of production. At this, the most integrated into the Union is Belarus (49.5 % of the volume of foreign trade within the Customs Union / CES), followed by Kazakhstan (14.8 %) and Russia (6.8 %).

Часть внешней и внутренней торговли стран-участниц ТС/ЕЭП в I полугодии 2014 г.
The share of the domestic and foreign trade of the participating countries of the CU/CES in the first half of 2014
http://www.eurasiancommission.org/

The main foreign trade partners of the participating countries of the CU/ CES are the EU countries (54.2 % of the total share of foreign trade with third countries), in particular, the Netherlands, Germany and Italy, as well as China. However, Ukraine's share in the structure of the trade turnover of the participating countries of the CU/CES by the results of the 1st half of the year had decreased to 5.1 % (22.7 billion US dollars).

Основные торговые партнеры стран-участниц ТС/ЕЭП в общем товарообороте в I полугодии 2014 г.
The main trade partners of the participating countries of the CU/CES in the total trade turnover in the 1st half of 2014
http://www.eurasiancommission.org/

Comparative analysis of volumes of domestic and foreign trade of the countries participating in the CU/CES in the 1st half of 2014 and 2013 (Table 1) shows a decrease in trade volumes in all countries of the association. The increase in the balance of trade with third countries was due to a substantial reduction of imports in the three countries by 9-10 %.

At this, the foreign trade surplus of the CU/CES is mainly due to exports of energy resources (75.5 % of total exports to third countries), of which Russia accounts for about 80 %. The largest part in the structure of imports in the Union is made by equipment and vehicles (45.3 % of total exports), chemical industry (16.1 %) and food products and agricultural raw materials (13.8 %).

At the same time, the volume of mutual trade in the CU/CES is due to the bilateral relations “Russia-Belarus” and “Kazakhstan-Russia”. At this, compared to the same period of 2013, had decreased exports and imports of mineral products (18 %), metals and their products (25 %), equipment and vehicles (9 %).

Table 1. Trade indexes of participating countries of the CU/ CES for the 1st half of 2013 and 2014

Counties

Half-year period

Tradewithin the CU/CES,billion US dollars

Foreign trade of the CU/CES countries, billion US dollars

Export

Import

Balance

Export

Import

Balance

Belarus

2013

8.5

11.3

-2.7

10.5

9.6

0.9

2014

8.0

11.0

-3.0

10.8

8.6

2.2

Kazakhstan

2013

3.2

8.9

-5.7

39.4

14.0

25.4

2014

2.5

6.5

-4.0

39.3

12.6

26.7

Russia

2013

19.8

11.3

8.5

236.3

139.2

97.1

2014

17.1

10.1

7.0

238.1

132.7

105.4

 

Товарная структура внешней торговли стран-участниц ТС/ЕЭП в I полугодии 2014 г.
Commodity structure of foreign trade of the participating countries of the CU/ CES in the 1st half of 2014
http://www.eurasiancommission.org/

Losses of the value of mutual trade due primarily to a significant reduction of oil and petroleum products supplies from Russia to Kazakhstan (by 1.44 billion US dollars, or 3.6 times) and Belarus (by 7.1 %). At this, significantly had been reduced exports of cars from Belarus to the RF (4.6 times, or by 228.7 million US dollars) and of tractors (by 18.5 %, or by 65.1 million US dollars) and trucks from Russia to Kazakhstan (2 times). Also, there was a significant decrease in the export of wheat from Kazakhstan to Russia (3.8 times, or by 154.6 million US dollars).

Apart from worsening of the trade between the CU/CES member countries, there is a further accumulation of disagreements, the catalyst for which is Russia's aggression against Ukraine, European aspirations of Ukraine, Georgia and Moldova, as well as introduction of the West's sanctions against Russia.

In this regard, the following problematic issues of functioning of the CU/CES stand out:

  • lack of unity of the CU/CES member-countries' positions about leading a single foreign economic policy. After the signing of this year, by Ukraine, Georgia and Moldova of Association Agreements and creation of free trade areas with the EU, the Kremlin's unilateral retaliatory steps towards these countries were not supported by Minsk and Astana. Similar is the situation with the support of the sanctions imposed by Russia against food imports from the USA, the EU, Norway, Australia and Canada;
  • politicization of work of the supranational body of the association — the Eurasian Economic Commission (Kazakhstan's President Nursultan Nazarbayev has repeatedly stressed the undue influence on the part of Russian officials on members of the College of EEC, working under the quota of the Russian Federation);
  • a significant number of limitations and exceptions in the mutual trade between the countries of the association. The most problematic spheres are trade in services, as well as alcoholic products, tobacco, pharmaceuticals and medical supplies, gas and oil, cars and fishery products. At the moment within the framework of the association there are in force about 600 different exceptions and limitations. It is significant that due to the reached between the Presidents of the Member States of the CU/CES agreements, they will exist until 2025;
  • Russia's monopoly on energy carriers supplies within the CU/CES. The Kremlin continues to use the energy factor to put pressure on Minsk and Astana, which has repeatedly caused gas and oil “wars” between Russia and Belarus and Kazakhstan. Besides, within the association there remain significant challenges for Belarus to obtain access to Kazakhstan's oil, despite the official Astana's being interested in this;
  • negative practice of the Russian side's taking legal acts that limit (under flimsy excuses) access of goods and services of the participating countries of the CU/CES to Russia's market. There are also cases where priority in public procurement in Russia is given to national suppliers. An example is the adoption by the State Duma of the Russian law on prohibition of transport services in the territory of the Russian Federation by persons who do not have a driver's license issued by its competent authorities;
  • different levels of state support for farmers in Russia, Kazakhstan and Belarus, that in the situation of the common customs area leads to a distortion of competition and thus harms the Russian Federation. The main reason is a more stringent taxation in Russia as compared with other countries of the association (for example, in Kazakhstan, the tax base is lower by 75 %);
  • increase in domestic prices in Belarus and Kazakhstan on consumer goods as a result of raising their prices up to the Russian level and due to the introduction of higher import duties;
  • increased competition in the domestic market among domestic producers in favor of Russian business and transition under Russian control of key sectors of the Belarusian and Kazakh economies.

All these facts indicate that the current format of the Customs Union/ Common Economic Space does not allow for equal development of all members of this association. Now the positive effects of integration in the revitalization of the trade is experienced only by Russia, many rates of import duties in which have been reduced as a result of joining the World Trade Organization (WTO). Besides, the structure of mutual trade between the member countries of the CU/CES shows a tendency of forming a system where Belarus and Kazakhstan serve as a raw material appendage of the Russian economy. This does not just hinder the economic development of the association, but reduces the credibility of the CU/CES, both on the part of businesses, as well as on the part of leaderships of Member States. Such imbalances are forming Minsk and Astana's ambiguous attitude to deepening of integration and are reducing its overall attractiveness in the eyes of potential members of the association (other post-Soviet countries).

The above-said indicates a possible exhaustion of the integration potential of the CU/CES, which requires Russia's seeking new sources of growth within the Association of Eurasian countries. To this, according to Russia, should contribute attraction to the Union of new Member States (in particular, Armenia, Kyrgyzstan and Tajikistan), as well as starting from 1 January 2015 of the Eurasian Economic Union, as the next form of economic integration. However, an important problem in the formation of the EAEC remains different attitudes of participating countries to the prospects of further expansion of the association. Thus, according to the Belarusian and Kazakh specialists, if the Union is joined by Armenia (let alone by Kyrgyzstan and Tajikistan) there will appear new contradictions within the EAEC, additional sources of conflict and confrontation, while the volume of smuggling and number of negative phenomena will grow.

Other post-Soviet countries are not rushing to support the Kremlin's integration initiatives either. After the events of the past year, Ukraine's “Eurasian aspirations” equal “zero.” Even the Free Trade Area of the CIS was joined by Uzbekistan in a separate manner only in May 2013, while Turkmenistan and Azerbaijan do not consider such prospects at all.

2. Strategic risks and scenarios for the development of the Eurasian Economic Union

The key factor of the current instability for the Eurasian Economic Union today is Russia's military aggression against Ukraine. A consequence of the conflict was the sharpening of the political dialogue between Russia, the sanctions imposed by the West against Russia and the RF's counter food embargo, as well as general uncertainty about consequences and further development of the situation around Ukraine.

The greatest threats to the countries of the Association are connected with the trend of decline in world oil prices.

In the nearest future, the greatest threats to the countries-members of the Association are connected with the trend of decline in world prices for oil and other traditional commodity exports of member countries of the CU/CES, as well as the increased domestic competition between producers.

Taking into consideration the unresolved problematic issues within the Association, as well as deterioration of Russia's relations with Western countries, the most important political and legal problem of further functioning of the EAEC, as a subject of international relations, will remain its recognition by the European Union and other international organizations (in particular WTO) and building relationships with them.

In the longer term risks of functioning of the EAEC will be as follows: reduction of the level of European countries' energy cooperation with Russia in addition to the crisis of the existing economic models of development of all participating countries of the Association as a result of the final exhaustion of their “post-Soviet” potential.

Despite the hope, declared in the signed in Astana Agreement on the Eurasian Economic Union, a number of external and internal risks negatively affect the prospects for economic development of the countries participating in the CU/CES and the success of the project of the EAEC as a whole. Among such threats need to be mentioned the following ones:

External risks of economic development of the countries participating in the CU/CES/EAEU:

  • The imposed against Russia sectoral sanctions and restrictions on its access to international capital markets indirectly affect other countries of the Association, in particular:
    • price growth and decrease in imports of technological equipment and dual-use goods from the EU and the USA to the CU/CES will increase the cost of projects of industrialization, to curbing of the pace of modernization of fixed assets, as well as to an increase in inflation in Kazakhstan and Belarus;
    • the risk of closing the channels of transportation of Kazakhstan's oil and gas through Russian pipelines and terminals, as well as other Kazakh exports of goods and services through the territory of the Russian Federation to the EU and the USA can dramatically reduce the production and export of mining and processing industry and agriculture of Kazakhstan. This is due to the fact that more than 50 % of Kazakhstan's exports are carried out through Russian transport corridors;
    • will grow the competition between metallurgical enterprises of Russia, Kazakhstan and Belarus in the domestic and foreign markets as a result of the expected reduction in imports of metal products from Russia to the EU and sending their surplus to the markets of the Customs Union and China.
  • gradual decline in oil prices under the influence of the global economic recession, further development and introduction of new technologies for the development of oil and gas, raising energy efficiency in major consuming countries;
  • the slow pace of recovery of the world economy amid weak global demand and slowing economic growth of developing countries, especially of China;
  • insufficient external demand for main export commodities of the participating countries of the CU/CES (hydrocarbons and their products, ferrous metals). Thus, the EU is taking measures to reduce consumption of Russian oil and gas by diversifying sources from Iraq, Libya, Iran and other Arab countries, Norway, United States, Nigeria and Brazil. Besides, there is a decline in exports to China of finished products in the form of steel and flat-rolled steel, while volumes of exports of raw materials in the form of metal ores are growing

Internal risks of economic development of the countries participating in the CU/CES/EAEU:

  • exhaustion of internal integration sources of economic growth of member countries;
  • deterioration of the economic situation in Russia (according to forecasts of the IMF, Russia's GDP in 2014 will grow by 0.2 % in 2015 — by 1 %), which will have a negative impact on the whole Association;
  • Russia's introduction of food embargo that has resulted in significant risks to the food markets of other countries of the Association. In particular, in Kazakhstan (in 2013 the supply of products from the countries from the sanctions list made 30 % of total imports) is expected decline in the import of poultry meat in volumes of 8.4 % of the domestic market, fish — 14 %, cheese — 25.6 %, milk — 10.8 %, resulting in inevitable growth of domestic consumer prices;
  • slowdown in Russia, Kazakhstan and Belarus of business activity of the private sector, investment activity and consumption volumes, due to the negative expectations of businesses and consumers. Introduction at the regional level in Russia of a sales tax may further worsen the situation;
  • rising inflation and devaluation expectations, decline in lending, capital outflows, decline in stock markets, difficulties with fulfillment of budget commitments and search for additional sources of economic growth, which is typical for all countries of the Association;
  • Russia's activation of the process of implementation of the programs of import substitution, including goods that have traditionally been imported from Belarus and Kazakhstan. An example is the gradual replacement of the Kazakhstan (from Ekibastuz) coal for the needs of power plants of the Urals and Western Siberia, with energy carriers from the Kuznetsk Basin in accordance with the Energy Strategy of Russia until 2030 and the Coal Industry Development Program of the Russian Federation until 2030.

 

Taking into consideration the threats to integration processes in the post-Soviet space, Eurasian Economic Commission prefers two scenarios of strategic development of the Eurasian Economic Union for the period of 2020-2030 — “Transit-Raw-Material Bridge” and “The EAEU's Own Center of Power”. At this, the prospects for the introduction of the scenario of “The Prolonged Status Quo” are extremely small because of the many negative consequences of its implementation.

  • “The Prolonged Status Quo” scenario suggested that the development of the economies of the EAEU member-states would occur within the current form of integration with gradual elimination of barriers to the movement of goods, services, capital and labor. National economies work increasingly independently, resulting in a relatively low degree of their influence on the overall economic results of the EAEU. The main effect of integration in the form of the rate of growth of mutual trade will be insignificant.
  • The “Transit-Raw-Material Bridge” scenario provides that stimuli for integration into the EAEU will become cooperation of members of the Association, within the framework of which the Eurasian space appears economically attractive for transportation of natural resources and transit of goods. On the other hand, it is a possible area for development of industrial cooperation between the European Union and countries of the Asia-Pacific Region (with the prospect of transfer of certain enterprises onto the territory of the EAEU). The main source of economic growth is raw-materials exports to third countries.
  • “The EAEU's Own Center of Power” scenario is aimed at formation of its own “center of power” based primarily on ensuring the quality of economic growth of the Member States of the EAEU. Integration aims at creating most favorable conditions for modernization of the economies of the Association, strengthening the competitive positions of both the domestic and global markets. The implementation of this scenario, especially at the initial stage, would be characterized by low growth of economies of the Member States of the EAEU.

The Eurasian Economic Commission forecasts the following results of realization of the respective scenarios of the Association strategic development:

The “Transit-Raw-Material Bridge” scenario

  • in the sphere of exports is expected an increase in deliveries to foreign markets (including to other CIS countries) of raw materials and products of their processing by all EAEU countries, as well as of products of engineering industry. It is assumed that the share of the new products in the range of exports by the end of the projected period will make from 1 % to 5 % depending on the type of product;
  • in the transport sector as a priority will be implemented projects for construction of transport infrastructure for the operation of international transport corridors on the territory of the EAEU, increasing exports from China and other Asia-Pacific countries to Europe and Central Asia. Measures will be taken to stabilize the cost of services of natural monopolies in the Association and the transfer of certain enterprises into participating countries. The tariffs are planned to be equaled and conditions of service to be harmonized, which will lead to a slight increase in prices for transportation and their stabilization throughout the forecast period;
  • in the energy sector will grow the importance of Belarus as a transit country for Russian oil to Europe (due to the situation in Ukraine included), as well as will grow the scope of cooperation with Kazakhstan in foreign markets due to the factor of oil supplies to China. Is expected annual increase in global energy consumption by 2 %, decrease in European imports of Russian and Kazakhstan's energy carriers no more than by 10 %, the transfer of energy-intensive industries from China and the European Union to Russia and Kazakhstan;
  • in the investment sphere — integration within the EAEU will contribute to further attraction of mutual and direct foreign investments from third countries into the transport sector, and fuel and energy complex.

The greatest economic effect of a possible realization of this scenario will be got by Belarus and Kazakhstan.

“The EAEU's Own Center of Power” scenario

  • in the sphere of foreign economic activity it is expected to increase the competitiveness of goods from countries-participants of the Association and to increase mutual trade and non-oil and gas exports. At this, the share of the new products in the range of export goods of the EAEU countries by the end of the forecast period will be from 2 % to 10 % ;
  • in the energy sector it is expected to create a common energy market and energy. At the same time Belarus' dependence on Russian energy supplies will remain, including downloading of refining capacities (transit capacities partially or completely come under the control of Russian companies). Within the framework of the “Russia-Kazakhstan” cooperation, is expected an increase in the presence of Russian companies in Kazakhstan's market, active use of the transit potential of the parties (shipments to China), coordination of the transfer policy (duty-free supplies from Russia and Kazakhstan's bringing the level of export duties to the Russian level);
  • in the transport sector is expected not only servicing the increasing transit traffic, but also formation of competitive international transport corridors on the territory of the EAEU;
  • integration in the investment sphere will cause additional revenue of mutual and foreign direct investments from third countries. First of all, it will happen due to a larger volume of the internal market and opportunities for full use of the competitive advantages of economies of Belarus, Russia and Kazakhstan;
  • in the field of monetary policy, devaluation of national currencies will slow down, which will be due to increase in exports and in foreign investments (in 2020-2030). At this, devaluation risks for Belarus will be significantly larger due to the continued payments imbalances (sustainable trade balance deficit with the increase of imports from Russia) and high inflationary potential;
  • in the sphere of labour market, the economically active population of the participating countries of the EAEU will grow. At this, because of integration will be an improvement in productivity and an increase in real wages in all countries of the Association.

3. Prospects for some post-Soviet countries' joining the EAEC

The Russian occupation of the Crimea and the subsequent military aggression against continental Ukraine have opened a number of problematic issues in the security sphere in the relationship within the CU/CES. Mutual distrust makes the real development of the Association as a full-fledged political and economic organization impossible. Population and leaderships of member countries of the CU/CES perceive Russian integration initiatives at former Soviet territories as purely political projects that meet the interests of the Russian Federation and which just limit sovereignty of other participants. Fall of the attractiveness of Russia in the eyes of its current and future partners occurs due to its inability to offer an effective model of political and economic cooperation.

Besides, Russia keeps demonstrating disregard for its partners, imposing unfavorable political and economic decisions. On the other hand, inhibition of the rate of development and obvious signs of recession of the Russian economy (stimulated by Western sanctions) will have a negative impact on the economies of neighboring countries, and will strengthen negative trade and economic trends in the Customs and the future Eurasian Economic Unions.

3.1. Armenia

In the country has developed an extremely unstable domestic and socio-economic situation around the CU/CES. Part of the opposition forces and the population of Armenia are against the country's entry into such a union. A controversial issue remains the status of Nagornyi-Karabakh (and the work of checkpoints on its borders) within the framework of the integration Union. Besides, the Armenian government experts still cannot calculate the final effect which will have on the economy reduction or cancelling of customs duties for more than 900 kinds of imported goods. It is expected that negotiations on this issue will be continued after the country's accession to the EAEU.

At present there is a situation where all negotiations on integration suggest Armenia's accession to the EAEU under any circumstances. At this, continuing preparations for accession to the Customs Union/CES, the Armenian leadership focuses not so much on the benefits of membership in the Eurasian project, as on negative effects (military and political ones included) in case of not joining this Association.

The adopted by the Armenian government “road map” of transformation of the economic system of the country according to the realities of the CU/CES so far has actually not been implemented, neither have been implemented the tasks of the specially created for its implementation commission. The only conclusion of this Commission for the entire period of work has become a statement of an inevitable at the first stage of Armenia's joining the Customs Union/CES, increase in consumer prices of most essential groups of goods, that will have a negative impact on the living standards of the population.

There are some disagreements between Member States of the CU/CES concerning determining the conditions and transitional provisions of the customs and tariff regulation in the draft agreement on the accession of Armenia to the EAEU. First of all, this concerns the use of 800 tariff lines on rates of import duties, different from the common customs tariff of the EAEU, at this, for 18 of them are offered higher rates. In this connection, the EEC emphasizes that it has already agreed on most of the debatable questions of customs tariff and non-tariff regulation, in particular, about the exemption from customs duties on importation into the territory of Armenia of the following things:

  • military products that are not produced in other Member States of the EAEU;
  • products for construction and modernization of a nuclear power plant;
  • goods within the framework of the program “Dilijan International School” and “Armenian-Indian educational center of information and communication technologies”;
  • raw cane sugar for industrial processing;
  • certain types of civil helicopters, passenger and cargo aircrafts.

At this, continues to increase the possibility of a number of negative economic consequences for Armenia, particularly in terms of harmonization of the customs legislation with the norms of the EAEU, emerging of contradictions in trade with third countries within the framework of the WTO, problems of reconciling the financial system with the countries of the Eurasian Union. Besides, the over-reliance of the official Yerevan on instructions of its main military and political ally (Russia) will have a negative impact on Armenia's economic relations with other countries of the world.

3.2. Kyrgyzstan

Taking into consideration the developments in Eurasia in the context of the Russian aggression against Ukraine, Kyrgyzstan so far is not harrying with fulfilling the “road map” of joining the CU/CES, while trying to get more financial aid from the member countries of the Customs Union. To adapt the Kyrgyz economy to the requirements and standards of the EAEU, Kyrgyzstan has already reached an agreement with Russia on the allocation of loan funds in the amount of 500 million US dollars, another 500 million US dollars for the replenishment of the authorized capital of the joint development fund and 200 million US dollars as a non-repayable aid. Kazakhstan is also considering (but not forcing) allocation for Bishkek of additional 100 million US dollars, which once again demonstrates Astana's reserved attitude to the accession of new members to the Eurasian Union. There is also a cooling of relations of Bishkek with the official Minsk, caused by Belarus's refusal to give away the former Kyrgyz President Kurmanbek Bakiyev in absentia sentenced to life imprisonment in his homeland. Against the country's entry into the pro-Russian Union is Kyrgyz opposition, and this could provoke unrest and attempts to change the power in the country by force.

Kyrgyzstan expects to achieve for itself a number of favorable conditions at joining the integration union. This applies to the consent of the partners to establish free economic zones (i. e., preservation of duty-free operation of the country's largest wholesale markets “Dordoi” and “Kara-Suu”, through which are re-exported huge amounts of first of all Chinese goods), introduction of preferential regime for Kyrgyz labor migrants' staying in countries of the CU/CES, financing equipment of specialized laboratories for products quality, sanitary and quarantine stations at border crossings.

Today the Kyrgyz leadership continues the process of adaptation of its own legislation to the requirements of the EAEU. At the same time, this process is delayed by emphasizing priority on preferences that will be provided to Bishkek by member-countries of the association, as well as by issuing for public discussion in advance of disputable questions. For such a discussion has already been proposed a list of products which will be provided with preferential terms of delivery.

3.3. Tajikistan

Карта проекта линии электропередач CASA-1000
The map of the project of the power line CASA-1000
http://www.casa-1000.org/

Tajikistan's leadership is noticeably interested in deepening economic and trade cooperation with the CU/CES countries. At this, it emphasizes the need for careful study of possible consequences for the economy if the decision to integrate into the Customs and the Eurasian Economic Unions is made. Accession of Tajikistan with the current state of the economy will lead to serious problems with the filling of the budget, for which the customs duties are very important. Besides, the official Dushanbe wants to mitigate other negative economic effects of integration, including to protect its citizens living and working in Russia, to receive support in the implementation of a number of economic projects critical for the country — such as the construction of the Rogun Hydroelectric Power Plant and a number of other hydroelectric power stations. The full membership in the EAEU raises a number of sensitive issues for Tajikistan — whether the CASA-1000 project (supply of electricity from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan) and the project for Trans-Afghan railway will be implemented. Russia's proposal to develop the northern route “New Silk Road” through BAM — bypassing Central Asia — is unacceptable for Dushanbe. Besides, the question of Tajikistan’s accession to the EAEU is inhibited due to the territorial disputes with the other potential candidate — Kyrgyzstan.

4. Negative consequences for Ukraine from the deepening of integration processes within the framework of the EAEU and ways to overcome them

Strengthening of the integration processes in post-Soviet territories, to which is supposed to contribute the creation of the Eurasian Economic Union, will have an impact, first of all on Ukraine's economic relations with members of the Association. Results of the analysis of the dynamics of foreign trade shows that Ukraine in 2013, compared with the previous year, had lost about 14 % of exports and 15 % of imports in foreign trade turnover with countries of the Customs Union. This was, first of all, due to the policy of import substitution (especially in Russia), and existence of a number of technical barriers (CU's regulations).

State of the Ukrainian-Russian relations  shows Moscow's unleashing a full-scale trade war with Ukraine

The current state of the Ukrainian-Russian relations suggests the official Moscow's beginning the large-scale trade war with Ukraine in all key spheres. This includes blocking the bilateral trade and economic cooperation, blocking Ukraine's cooperation with other post-Soviet states, use of restrictive measures against Ukrainian products, complete cessation of natural gas supplies to Ukraine, freezing cooperation in the financial, credit and investment areas, joint projects in the field of industrial cooperation and infrastructure, military-technical cooperation. For this purpose, the Russian side is using almost all-available political and economic resource, including abilities of potential partners in CU/CES and its influence on other post-Soviet countries.

Taking into account the extensive trade and economic relations of Ukraine with Member States of the CU/CES, the undertaken within the framework of creation of the EAEU steps will lead to the following negative consequences for Ukraine:

  • empowerment of the Eurasian Economic Commission, which will allow Russia to establish control over the financial sector of the participating countries and their sphere of foreign trade. This can be used to influence Ukrainian positions in the financial markets of the EAEU and the terms of trade (the settlement) of the participating countries of the Association with domestic business entities;
  • wide use of special protective, antidumping and countervailing measures against Ukrainian goods; use of limited access of Ukrainian goods to the markets of the EAEU due to accusations of its “non-compliance” with the requirements of technical regulations, sanitary and phyto-sanitary standards in force in the territory of the association;
  • unification of approaches of states in the sphere of scientific and technical cooperation and protection of intellectual property rights, which will lead to a gradual reduction of international cooperation (including within the framework of the International Association of Academies of Sciences) and a decrease in demand for domestic developments of a fundamental nature on the part of the EAEU countries;
  • further harmonization of legislation in the sphere of transport services, which will lead to unprofitable for Ukraine changes of the tariff policy.

To overcome the negative consequences of deepening integration within the EAEU for Ukraine's foreign trade, the following is advisable:

  • to diversify the geographical structure of foreign trade, minimizing reliance on markets of the Eurasian Economic Space;
  • to optimize and balance the structure of imports and exports to the EAEU;
  • to focus efforts on creation and promotion to international markets (including in countries of the EAEU) of Ukrainian high-tech product groups;
  • to continue cooperation with the Eurasian Economic Commission on the basis of the existing Memorandums (on cooperation in trade, cooperation in matters of technical regulation, on deepening of cooperation between Ukraine and EEC);
  • to develop new mechanisms to protect interests of Ukrainian exporters in the Eurasian market;
  • to hold regular consultations with the EEC about changes of the EAEU's regulatory basis;
  • to take measures to preserve the free trade regime with member countries of the Eurasian Economic Union, including on the basis of Art. 102 of the EAEU Treaty, under which there is possibility of giving trade preferences to a third party on the basis of the concluded before 1 January 2015 international agreement;
  • to formulate proposals to save the volume of trade cooperation with Kazakhstan and Belarus in accordance with international agreements and WTO rules;
  • to take steps to preserve Ukraine's participation in the CIS free trade zone. For example, the EU Delegation in Ukraine, analyzing the consequences of Ukraine's potential withdrawal from the CIS (including from the Free Trade Area of the CIS), estimated annual losses to the national economy up to 3 billion US dollars due to the cancellation of zero import customs tariffs, non-recognition of certificates of origin of goods and termination of the agreements, regulating trade in certain categories of goods, in particular livestock;
  • to apply the tools of the WTO to settle trade disputes (in case of introduction of unjustified restrictions or excessive customs charge rates compared to other WTO members);
  • to pursue a pragmatic policy of trade cooperation with Russia, using (on a parity basis) trade defense instruments.