October 18, 2013

”Eurasian Roulette”

Ukraine, Moldova and Georgia's clear and consistent policy on the signing of the Association Agreement with the EU causes the Russian Federation's nervous reaction,   because Russia is trying to influence positions of independent states and force them to join its Customs Union, as it has recently happened with Armenia. At this, the Customs Union's problems are being thoroughly secreted. And so are errors in the plans of the Eurasian integration at post-Soviet territories.

In particular, as mentioned in “Borysfen Intel” 's previous publications, very eloquent are the following facts: domestic prices of Belarus and Kazakhstan get increased by being pulled up to the level of Russian tariffs; CU members' expenses on bringing standards of their plants to general requirements set by Russia, grow; customs barriers within the framework of the Customs Union remain; competition between Belarus, Kazakhstan and Russian oligarchic business structures (the latter having greater financial and economic opportunities), becomes more severe.

 Lukashenko: Eurasian Parliament is not needed
Lukashenko: Eurasian Parliament is not needed http://bdg.by/

Recently, exactly due to the mentioned above, new, sharper problems appear, which, on the one hand, can be explained by the activation of Russians in establishing their control over the post-Soviet space and the creation of the Eurasian Union, and on the other — by the economic situation in the countries of the Customs Union getting complicated, and, accordingly, increasing competition between them.

Thus, along with the increased pressure on Ukraine, Moldova, Armenia and Georgia, as members of the EU “Eastern Partnership” program, Russia has intensified the impact on its partners in the Customs Union, forcing them to accept the Russian conditions of creation of the Eurasian Union. First of all, Russians demand to accelerate the processes of integration of the CU members in the political sphere, including to create a supranational structures of the organization (the Eurasian Parliament). This suits neither Belarus nor Kazakhstan. Pressure is also observed in other aspects of cooperation, where the Russian side is trying to solve everything again in its own favor.

General Director of OJSC “Uralkaliy” V.Baumgartner
General Director of OJSC “Uralkaliy” V.Baumgartner

As for the methods of pressure on Belarus and Kazakhstan, Russia uses most sensitive ones, which directly affect finances and economy. For example, cooperation of the Russian company “Uralkaliy” with the Belarusian company “Belaruskaliy“ got into the dead end in July, when Belarus was deprived of the only channel of export of its potash production to foreign markets through the common trader  CJSC “Belarusian Potash Company.”

Financial losses of Belarus have made 100 million US dollars. Besides, Belarusians can lose up to 10 % of their exports. Taking into account the critical nature of this issue for Belarus, its leadership decided on a sharp step and arrested General Director of OJSC “Uralkaliy” V.Baumgartner, invited to Minsk for talks with the head of the Belarusian government Mikhail Myasnikovich. The head of the Russian company is charged with the development and implementation of criminal schemes of economic activity involving the assets of Belarusian companies, and with misappropriation of its funds.

Censors have cut out the NTV 's material about Baumgartner's arrest

To compensate for the losses of “Belaruskaliy“ and to strengthen its positions at the world market, in August of this year the Belarusian side signed a contract with Qatar's concern Muntajat. New partners will try to sell Belarusian products in the Middle East.

In response, despite all the promises and agreements within the framework of the Customs Union, Russia has started another economic war against Belarus. Thus, according to its traditional tactic of “resolving conflicts” with partners (Belarus included), Moscow has promised to close its market to Belarusian dairy products because of their alleged “non-compliance with safety and quality,” as well as to cut oil supplies to Belarusian refineries (under the pretext of “the need to repair the pipeline “Druzhba”).

All this is another blow to internal relations in the Customs Union, which are already complex and contradictory. Especially because trade wars with partners are used not only by Russia, but by other members of the CU.

Due to the trade war with Russia, Roshen's losses may make 1 billion hryvnyas
Due to the trade war with Russia, "Roshen's" losses may make 1 billion hryvnyas http://zn.ua/

Thus, today the Belarusian agricultural machinery manufacturers have actually driven Russian enterprises out from the market. At this, any proposals of Russian companies are either deliberately rejected at the stage of competitions, or not considered at all by the Belarusian side under the pretext of lack of the required demand. This has already caused a number of losses of Russian enterprises which focused their activities on Belarus, in particular, Krasnoyarsk Combine- Building Plant and plant “Lesselmash“ (Krasnodar region of Russia).

By the way, the reason for the European Economic Commission's having not given Kazakhstan a special quota on the import by old customs tariffs of combine harvesters (of obviously better quality than  Belarusian or Russian ones), was the interference of Belarus and Russia.

Similar cases have been observed in other industries. In particular, in August this year, the Russian Industry and Trade Ministry prepared a draft decree of the Russian government on additional requirements to government orders for pharmaceuticals. According to the document, government organizations may purchase medicines only in Russia and in Belarus. Pharmaceuticals from Kazakhstan are not mentioned in the document at all.

Russia makes attempts to impose restrictions on the purchase of fabrics for special clothing, and in Belarus is the same situation with the construction industry on government orders. There are a lot of problems with access to the Russian market of Kazakhstan's food products.

All this could not help leading to a reduction in the rate of growth in mutual trade within the Customs Union. For example, in 2010 this figure was 33 %, in 2011 — 29 % and in 2012 — 8.7 %. At this, in 2012 the volume of Kazakhstan's trade with other countries of the Customs Union in general decreased by 3.7 %. Because of this, the share of Kazakhstan in the balance of trade in the CU in 2012 fell to the limit of less than 17 %, while in 2011 the figure was over 20 %. Similar trends have been observed in 2013.

But as a counterbalance of this is activation of trade and economic cooperation between Kazakhstan and China. For example, in 2012 the volume of trade between them grew by 12.5 %, and has all chances to keep growing. In particular, following talks between Kazakhstan's President Nursultan Nazarbayev and the General Secretary of the Communist Party of China Xi Jinping in September, it was agreed to increase the volume of bilateral trade from 24 billion US dollars in 2012, to 40 billion US dollars or more — by 2015.

It should be noted that the differences between the members of the Customs Union make Russia take such steps as pressure on Ukraine and other member countries of the EU “Eastern Partnership” program. At this, it uses the mechanism of the CU. For example, Russia demands that Belarus and Kazakhstan should close their markets to Ukrainian goods. This, of course, does not suit either Minsk or Astana, which  have no political claims to Ukraine and do not want to lose it as a good trade and economic partner.

The Prime Minister of Belarus Mikhail Myasnikovich
The Prime Minister of Belarus Mikhail Myasnikovich

For example, Belarus and Kazakhstan have refused to support Russia's sanctions against production of the Ukrainian company “Roshen”. Besides, neither Belarus nor Kazakhstan can see any problems with Ukraine's intention to join the Association Agreement with the EU. According to the statement of the Prime Minister of Belarus Mikhail Myasnikovich, the Belarusian side under any circumstances will not interrupt trade and economic cooperation with Ukraine. Taking into account this position, during M. Myasnikovich's meeting with the Prime Minister of Ukraine Mykola Azarov, they agreed to establish a working group to study the issue of trade relations between the two countries.

Both, Belarus and Kazakhstan are quite critical in their views on the actions of the Russian Federation when it unreasonably pushes and thoughtlessly draws to the CU Armenia and Kyrgyzstan, which are experiencing economic difficulties, and at the same time have problems in relations with neighboring countries. Military confrontation between Armenia and Azerbaijan has lasted for more than twenty years, destabilizing the entire Caucasus region. Kyrgyzstan also is politically unstable and has a very complicated relationship with Uzbekistan, in particular, due to border problems which periodically provoke bilateral armed clashes.

One way or another, but all these problems make supporters of the Customs Union doubt about its feasibility. In particular, at the time of initialization of the idea of Eurasian integration in 2011, the number of its supporters in Russia was 54 % of the total population, in Belarus — 44 %, in Kazakhstan — 52%. Against the Customs Union spoke 19% of the population of these countries.

After three years of work of the Customs Union, these figures have changed, and not at all in favor of the integration processes in the Eurasian space. Thus, the number of people willing to integrate into the Eurasian Union has fallen in Belarus — by more than 10 %, in Kazakhstan — by 7%, in Russia — by 5 %.

The most revealing such trends are in Kazakhstan. Kazakhstan, unlike Belarus, is actually less dependent on Russia, and has a powerful alternative partner — China. Today in Kazakhstan can be seen discontent with the Customs Union as well as with the prospect of participating in the creation of the Eurasian Union.

In September of this year, more than 500 Deputies of legislative bodies of Kazakhstan, as well as representatives of non-governmental organizations, began collecting signatures for a referendum on the country's leaving the Customs Union. Kazakhstan's government officials, businessmen, politicians and experts support the idea of disintegration from the CU. In their opinion, Kazakhstan's further membership in the Customs Union, as well as its entry into the Eurasian Union has no future. Moreover, it would harm the interests of Kazakhstan in the political, economic and security spheres.

Enforcement of Ukraine to the Customs Union can destroy the Customs Union itself
Enforcement of Ukraine to the Customs Union can destroy the Customs Union itself http://censor.net.ua

As an alternative, they propose measures to deepen cooperation between Kazakhstan and the European Union, up to the establishment of relations with the EU, like “Eastern Partnership”.  The reason for this is large reserves of energy carriers in Kazakhstan, which will give the country an opportunity to take a leading position in the European energy sector.

So, if we talk about the future of the Customs Union, and Russia's plans to build on its principles the Eurasian Union as an alternative to the EU, all this has no prospects. Especially if we compare the economic potentials of the two organizations. The potential of the European Union, for example, is more than ten times higher than the combined economic potentials of Russia and its allies. If a free trade area between the EU and the USA is set up,  this benefit will increase by at least two dozen times.

In general, all these facts once again confirm that Ukraine's course towards the EU integration has no alternative. At this stage, it is necessary to secure the signing of the Association Agreement, which will actually be a prerequisite for Ukraine's returning  to Europe.