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'The Big View' January 2012 (Part 1)

Russia’s Chance: Re-designing the Economic and Geopolitical Eurasian Space

Tomislava Penkova, Research Fellow ISPI, Lecturer Catholic University of Milan

On 1 January 2012 a single economic space (SES) comprising Russia, Belarus and Kazakhstan came into force. For the first time since 1991 and after numerous ineffective attempts for regional integration promoted by Moscow, three former-Soviet states succeeded to create a supranational economic entity to which they agreed to delegate a part of their sovereignty. The SES is the second phase of a broader project on regional economic system that was launched in January 2010 with the establishment of a customs union (CU) between the three states. After the removal of tariffs and customs controls along those states’ internal borders in mid-2011, now the SES takes the integration process a big step forward providing for free movement of goods, services, capital and labour. The real breakthrough is the creation of a Eurasian Economic Commission (EEC) to monitor the compliance of member-states with the rules of the SES, and a Court for resolving business disputes. The Commission is a two-tier body featuring a Council and a Board with an apex body, the Supreme Eurasian Economic Council, which consist of heads of state and government. While all projects before 2010 were doomed to be inefficient due to the wide disparity between Russia and the rest of the region, the SES emphasizes the principle of equality. Russia, Belarus and Kazakhstan have one vote each in the governing bodies of the Eurasian Economic Commission and all decisions will be taken by consensus. At the same time, contributions to the EEC budget will be proportionate to the relative size of members’ economies.

The SES is an open club. So far Kyrgyzstan and Tajikistan have expressed an interest in joining it (their economies are closely integrated with the economies of Russia and Kazakhstan; there is a considerable flow of Tajik and Kyrgyz labour migration towards Russia), while Russia has persistently but unsuccessfully sought to attract Ukraine in it demonstrating the benefits Kiev will get in terms of gas price reduction and competitiveness of Ukrainian exports. Ukraine’s absence in the SES weakens the project and it is likely that Moscow will continue the political pressure on it.

January 12 image

Many agree that the SES brings more tangible benefits than losses. It represents a common market of 165 million people with a $2.55-trillion economy, $900-billion trade and 90 billion barrels of oil reserves. It is the world’s largest union in terms of territory and the sixth biggest in terms of GDP. Experts expect that the SES will generate additional 15 to 17 per cent growth rates in each of the member-states over the next ten years. Beyond economic benefits stemming from lowering/eliminating trade barriers and banking restrictions, there are also demographic ones (unlike Central Asian and Ukrainian population, Russia’s one is getting older), geopolitical ones (increasing region’s competitive geostrategic value), and social ones (Kazakh President Nazarbayev spoke of restoration of brotherhood between peoples who had always lived together).

Although currently the SES is designed as an economic project by 2015 the SES should be upgraded to a new stage, a Eurasian Union, as Russian Premier Putin proposed. It will be a full-fledged economic bloc, modelled on the European Union with a harmonised legislation, and closely coordinated economic and monetary policies open to other countries, both inside and outside the former Soviet Union. Russia’s recent accession to WTO and consequent application of WTO rules to practical cooperation within the SES will greatly facilitate such cooperation. In his article published just days after he had announced his aspiration to run for president in March 2012, Putin defined this supranational union as a pole “playing the role of an effective bridge between Europe and the dynamic Asia-Pacific region”. The term ‘Eurasian’ confirms this vision and emphasizes its difference from the term ‘post-Soviet space’ often rejected by some analysts. ‘Eurasian’ rests on new regional dynamics and shifting post-1991 boundaries and, if successful, it could be a way to reconceptualize this space considering the economic vigour of the Asia-Pacific area compared to the EU. It could be seen as a modus vivendi in relation to both these adjacent ‘blocs’ based on Putin’s foreign policy main trends. Approaching other regions/great powers alone or as a union generates different images, perceptions and political leverage.

Euro crisis and EU inability to achieve a breakthrough in its Eastern neighbourhood policy (to some extent the SES is a reaction to it), US disengagement from the post-Soviet space as well as NATO forces withdrawal from Afghanistan (possible comeback of Taliban and a spill-over of terrorism in Central Asia), coupled with the recent decision by the Collective Security Treaty Organisation to allow deployment of foreign military bases only with the consent of all its member-states (providing Russia with a veto power over US military infrastructure in Central Asia), offer Moscow an ideal occasion to re-claim its influence over the region. Taking into account the global economic uncertainty and domestic political protests (next Russian President will have to ensure its legitimacy so as to avoid post-electoral external pressures) it would be better for Russia to focus its attention on its neighbourhood rather than on global issues. That neighbourhood is conceived of as an expansion of its domestic market and a possible response to growing international instability. Furthermore, unlike the recent past, at the moment no other powers present an alternative to Russia’s integration project. Hence efforts to pursue such an ambitious target as the Eurasian (economic) union seems a reasonable priority for Russia’s foreign policy and the next presidency, as confirmed by outgoing President Medvedev in his state-of-the-nation address in December 2011.

Russia is still lacking an attractive development or political model to be emulated by the countries in the post-Soviet space but its economic bid appears to be the only concrete and viable regional integrationist design. So far nobody can predict how successful the SES will be and whether it will evolve into the much desired Eurasian Union. Much will depend on Russia’s capacity to advance economically, technologically and politically but much will depend as well on global economy, and on whether countries in the region will have other options and of what kind.