November 28, 2012

Customs Union as an Instrument of Implementation of Russia's Geo-Political Plans at the Post-Soviet Area

A strategic goal of the Russian Federation’s foreign policy at the current stage of its development is reestablishment of its role of a great world power, equal to other world centres of force. Achieving this goal means establishing Russian control at the post Soviet area through various integration structures, which include countries of the former USSR. An example of such a structure at the moment is the Customs Union (CU), which Russia is trying to strengthen and widen, aiming at forming later (by 2015) on its basis the Euro-Asian Economic Union and still further - the Euro-Asian Union (in 2020-2025).

The activity of the Russian Federation in implementation of these plans have become more active especially after V.Putin’s return to the post of Russia’s President. That gives him wider abilities for implementation of the global idea of returning “its lost territories” under the aegis of Moscow.
The Russian side especially focuses on involving Ukraine to the Customs Union, because without Ukraine no integration structure at the post-Soviet area can be considered as a proper military-political and economic organization.

For this purpose, methods of the direct political, economic, information pressure are used, elements of obvious blackmail included (such as threatening with closing the Russian market for Ukrainian goods, raising price of the Russian gas for Ukraine if it refuses to join the CU), as well as "attractive offers" of economic nature. The apologists of the idea of Ukraine’s joining the CU call the following main advantages:

  • getting a duty free access to the market of 200 mln people which make up the population of Russia, Belarus and Kazakhstan, and potentially of other countries of CIS, Kirghizia and Tadjikistan in particular;
  • stability of Russia’s economy (as of the “leading and the system-forming member of the CU”) in comparison with the crisis condition of the economy of the most EU countries. To confirm this, they mention predicted high pace of economic development of the Russian Federation in 2013-up to 4% as compared with 0.5 % in the EU for the same period;
  • possibility of the price reduction of the Russian gas for Ukraine to the level of its price for Belarus-around 160 US dollars per 1 thousand cubic metres;
  • growth of the direct investments volumes of the CU countries into the Ukrainian economy.

At the same time, the accent is being made on real prospects "of Ukraine’s getting all the privileges immediately after joining the CU”, while “Ukraine’s adaptation to the Zone of free trade with the EU will need a few years”.

Well, at the first sight the figures and offers do impress. But such “bare” facts characterize real advantages of the Eastern or Western vectors of integration of Ukraine, being just elements of the Russian Federation’s largest scale informational campaign for putting forward its own geo-political interests regarding our country and other CIS countries. 

Keeping this in mind, let us compare the main indices of the economic development of the EU, toward which Ukraine is heading, and those of the CU, which is being offered to Ukraine by Russia.

To begin with, the impressive market of 200 thousand people of the CU of Russia, Kazakhstan and Belarus is 2.5 times smaller than that of the EU, which numbers about 500 mln potential customers(with a much higher purchasing power, than that of the major part of the population of post - Soviet area). Let us agree that the average income of 400-500 US dollars per month in the CU countries (nearly like in Iraq) is nothing to compare with the 607 thousand US dollars in the EU countries (at the absolute prices being lower than in Ukraine).

The comparison of the percentage of the economy increase in the EU and Russia is the same fiction. Thus, in absolute figures the growth of the European economy by 0.5 % a year means above 5 trillion US dollars, while the growth of Russia's economy by 4 % makes only about 2 trillion US dollars.

Moreover, the Russian Federation’s economy is de facto in a much worse state than the economy of Europe. For example, while the economic problems of the EU are of temporal, situational, subjective character, the economy of Russia is in the zone of deep system risks. In particular, the current complications of the economic situation of EU were caused by the errors in the banking-finance activity of some European countries and speculations at the finance exchanges, as well as excessive expenses on social needs, exceeding the abilities of their ensuring. Nevertheless, according to the European Commission, thanks to the taken measures, the economy of the European Union will restore the positive dynamics of its development not later than in the second half of 2013.

Unlike the EU, Russia is in a different situation. The Russian Federation's main system problem is its economy’s critical dependence on the export of energy resources. As the experience of the autumn of 2008 shows, lowering of the world’s oil prices to 90 US dollars per barrel causes a deep crisis of Russia’s economy within following 3-4 months, and Russia actually completely loses its gold currency reserves. The above mentioned tendency is also confirmed by the second half of 2012, when lowering of the average price of oil from 120 to about 90 US dollars per barrel literally within a month led to the deficit of the RF’s budget, having actually made impossible to fulfill Russia's President V. Putin’s pre-election promises in the social sphere, and complicated the implementation of the Russian defense programs.

Besides, the Russian economy is significantly suffering from corruption and bureaucracy in the government organs of the Russian power, excessive government control of economy, the unsatisfactory state of the transport infrastructure, the drain of qualified staff, permanent worsening of the demographic situation in the country. As a result - the amount of foreign investments into Russian economy decreases, the outflow of the capital from the country increases (according to different data, since the beginning of 2012 it has made about 90 billion US dollars).

In overall, these problems have led to a sharp decrease of the pace of the Russia’s economy growth since the middle of 2012. Stagnation in the first rate has gripped the highly technological and scientific branches, which can be explained by the lack of investments for their development. Besides, a significant increase of corporate debts of Russian companies can be noticed (by 7.3 % within the first six months of 2012), equaling 585 billion US dollars, which exceeds the gold currency reserve of the Russian Federation by 17 %.

The government loans of Russia also increase. They go on covering the deficit of the state budget of the country. In particular, for this purpose in 2013 - 2015 they are going to draw in 5.7 trillion roubles from internal and external sources.

The situation in the economy of Belarus is not better. Thus, high pace of the development of the country in the first half of 2012 was mainly explained by reselling the products made from Russian oil by Belarusian companies, which Belarus gets duty free in the frames of Customs Union. After having lost this opportunity in summer of 2012, economic situation in Belarus immediately experienced another sharp complication: the pace of the development of the economy in the third quarter of this year slowed down to 1.9 % (in the first and second quarters this index was 3%); the negative balance of the foreign trade is back; the outflow of the foreign capitals began, and the inflation is growing (in 2012 its level will be about 28 %). And as a result, the government of Belarus has to apply to ICF and Anti-crisis Fund Euro-Asian Economy Union. 

The situation in Kazakhstan is comparatively better, that can be explained by its sizable oil and gas resources and by the timely diversification and widening of its export abilities. Reduction of the world prices of energy resources does influence Kazakhstan negatively, though.

All above mentioned facts slow down the development of the CU, and thus does not guarantee rapid positive results of joining it, the promised investments included. Actually, the Russian Federation leaders admit this. For example, according to the RF President Vladimir Putin (in his time of being the head of the government of Russia), real achievements from the Customs Union can be expected not sooner than in three to five years.
As to Russia's promises to reduce gas prices for Ukraine if the latter joins the CU, their “truthfulness” is clearly confirmed by the “Kharkiv Agreements” between Russia and Ukraine. Thus, Russia has not only  reduced the gas price for Ukraine, on the contrary - it has raised it, and in addition to it has put forward a number of demands to our country regarding location of the  Russian Federation‘s Black Sea Fleet at Ukraine‘s  territory.

Besides, the activity of the CU is accompanied by serious problems influencing its work’s effectiveness. They are:

  • difference in the strategic goals of the participation in the CU of Russia, Belarus and Kazakhstan. As has already been said above, the main goal of the Russian initiatives of creating the CU is the implementation of the Russian Federation’s strategic plans of reestablishing its dominating positions at the post-Soviet area. For their parts, Belarus and Kazakhstan use their partnership in the CU exclusively for getting preference from the Russian Federation, as well as abilities to profit from reselling Russian oil and oil products. At the same time, neither Belarus, nor Kazakhstan is going to give up its sovereignty to please Moscow’s geo-political plans;
  • the inconsistency of customs and technological standards of production of national economies of the CU member - countries, which sufficiently complicates the ability of the CU members to lead coordinated macro-economic policy. The necessity to change the national legislation of the CU country - members of considerably, different conditions of their economic activity and also private interests of the local business circles stay in the way of the operational solving of the problem;
  • complication of the CU country - members’ economic relations with other countries and international organizations. First of all, this is connected with the conflicts of interests of the country-members of the CU in the determination of the levels of import and export duties for the trade operations with the countries – non-CU-members. For example, the partners of Russia in the CU experienced extremely negative consequences of the introduction of a number of technological regulations, for example, the one “On the safety of Wheeled Means of Transport”, which has actually made impossible the import of foreign cheap cars into their countries;
  • significant superiority of Russia’s economic capabilities over those of Belarus and Kazakhstan and of other potential CU members, which allows Russia to dominate in the CU. For example, in the management of the CU Russia has 57 % of voices, while Belarus and Kazakhstan- 21.5 % each. In its turn, it gives Russia and Russian business wider abilities in the control of the leading economy branches of the CU member countries (without taking into consideration their interests, included).

In general, the above mentioned facts have already led to the negative consequences for Belarus and Kazakhstan. What do we mean? We mean losing a part of economic, and thus political, sovereignty by Belarus and Kazakhstan through the weakening of their governments' control of the strategic objects of their national economies, and due to the obligation to agree their internal and external economic activity with Russia. There appeared preconditions for the redistribution of the Belarusian and Kazakhstan business circles’ ownership to Russian oligarchs’ profit. First of all, this can be said about Belarus, which has already passed over its control packet of shares of the Belarusian Company “Beltransgaz” to the Russian “Gazprom”. Besides, some other enterprises appeal to the Russian side, both in the civil and defence sectors of the Belarusian economy.

The competition between the Russian and local producers have increased, and this leads to reduction of the profitability and bankruptcy of Belarusian and Kazakhstan enterprises, and accordingly, to the increasing of level of unemployment. There appeared a necessity of sufficient additional expenses on bringing the technological standards of the production of CU countries to those of Russia. In particular, according to the Belarusian experts, introduction of the “CU’s common” standards in Belarus brewing industry alone, demands about 500 million US dollars. As to the domestic prices of the main food products, and of the goods imported from other, non - CU member-countries, they have risen. The reasons for the above mentioned facts are obvious: the outflow of cheaper food from Belarus and Kazakhstan to Russia; using the abilities of duty free trade in the frames of the CU for buying and speculative reselling goods by a number of business groups (in the first rate those of Russia); increasing of duty levels for goods being imported into the CU area from other countries.

Despite the formal removal of the duty barriers within the CU, Russia continues using the practice of economic pressure at its CU partners, raising the prices of energy resources and limiting their supply to Belarus included; it also closes its markets for Belarusian and Kazakhstan goods under various imaginable excuses. This can be confirmed by the constant gas, oil and trade wars between Russia and Belarus, which we have lately witnessed.

The above mentioned processes provoke growth of the protesting moods among the Belarusian and Kazakhstan population, which increases the threat of social unrests in the above mentioned countries. Just to mention one example - a complicated, explosion dangerous situation in the Western parts of Kazakhstan caused by the sharpening of the local social-economic problems. Some representatives of the national elite of Kazakhstan have already applied to President N. Nazarbayev with the demand to revise the country’s membership in the Customs Union.
In fact, the only positive consequence of the activity of the CU, so far, is the increase of the turnover of goods among the CU member countries. Their additional incomes, though don’t exceed the identical indexes in the development of trade-economic relations of Russia with other countries, which are not members of the Russian integration structures.

The aforesaid gives grounds for making some general conclusions.

  • the first conclusion - joining the CU won’t give Ukraine rapid positive results for its economy and won’t guarantee either whole or partial consideration of our country's interests in its relations with Russia;
  • the second conclusion - joining the CU actually will mean losing a part of its sovereignty by Ukraine and will make impossible its integration into the EU, which has a comparatively wider market and much  better prospects of development, despite the current problems;
  • the third conclusion - in case of having made a decision about joining the CU, the government of Ukraine has to be ready to the significant expenses (several dozens of billions of the US dollars) to bring the Ukrainian goods to Russian norms; the Parliament will have to change the law of the country dramatically; and Ukrainian oligarchs should be ready for real losing their businesses to the advantage of the Russian capital;
  • the fourth conclusion - Ukraine’s membership in the CU does not exclude (at least at the beginning) sharpening of the social-economic problems in the country, spread of anti-government moods among the population and social unrest;
  • the fifth conclusion - any concessions on Ukraine’s side will be considered by Moscow as our country’s weakness and grounds for putting forward new claims and demands to it. In particular, this will inevitably concern: Ukraine's joining the Collective Security Agreement Organization (with creating together with Russia the systems of confrontation of NATO and China, as well as sending Ukrainian troops to all hot spots at the post-Soviet area); federalization of our country and bringing the Crimea back under the aegis of Russia (which, in fact, will mean the disintegration of Ukraine) and complete subordination of Ukraine to Russian interests and complete transformation of Ukraine into an average Russian region (as it is happening with Belarus).

Understanding the situation perfectly well, Russia is “pulling” Ukraine into the Customs Union with the only purpose - to fix it in the sphere of its influence forever, that's what strategic efforts of Moscow aim at. And this is the only thing, and nothing else, that is waiting for Ukraine in its movement in the Eastern direction.