WHERE IS GUUAM HEADING?

Anatoli BARKOVSKIY
Rivanna ISLAMOVA


Anatoli Barkovskiy, D.Sc. (Econ.), Deputy Director, Russian Academy of Sciences Center for Foreign Economic Research, professor at the Academy of Finance of the Russian Federation Government (Moscow, Russia)

Rivanna Islamova, Researcher, Russian Academy of Sciences Center for Foreign Economic Research (Moscow, Russia)


GUUAM is a subregional formation of five states created in 1997 by Georgia, Ukraine, Azerbaijan, and Moldova, later joined by Uzbekistan in 1999. In our opinion, this structure is still in the making. In order to determine how this process will evolve, we need to look at a few of the stereotypes that have already been attached to GUUAM in the academic milieu, political circles, and mass media, and around which discussions are revolving.

We will single out four of them. GUUAM is the result of the CIS states moving toward integration at different rates; it is the product of the clash in American-Russian interests in the south of the post-Soviet space; it is a means for shaking off Russian economic and political control; it is an organization created to counterbalance the Customs Union, which transformed into the EurAsEC, but in its integration activity it relies not so much on a single mechanism of cooperation as on the unifying force of joint projects.

Stereotype 1

By the end of the 1990s, four subregional formations had emerged in the post-Soviet space of the CIS: the Union State of Russia and Belarus (USRB); the Eurasian Economic Community (EurAsEC), which comprises of Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan; the Central Asian Economic Community (CAEC), which transformed in 2002 into Central Asian Cooperation (CAC) and includes Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan; and the community consisting of Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova (GUUAM).

This breakdown into groups among the CIS states was officially interpreted as integration at different rates and different levels, which was done, it seemed, in order to deliberately downplay the inability of the Commonwealth as a single structure to implement the numerous program documents signed mainly during the first half of the 1990s. It implied that the countries had created different groups precisely in order to find a common denominator that met their real possibilities and interests on different scales and at different times. This common denominator took the form of a free trade area, a customs and a payment union, and a single economic space.

But whereas the EurAsEC can be considered the direct heir to the CIS precepts, and the USRB an even more economically integrated community, the CAC, and even more so GUUAM, cannot currently be classified as regional integration structures either in terms of generally accepted criteria, or regarding their declared ambitious goals.

The matter primarily concerns the degree of reciprocity of the national economies of the countries belonging to these unions. Their reciprocal goods turnover should at least be close to half of the entire goods turnover of the member states. But in reality it is much less and is observed only between neighboring countries (Georgia and Azerbaijan, Ukraine and Moldova). The reciprocal trade structure that has developed inspires no particular hopes for any growth prospects. Just as before, countries of the far abroad and Russia will account for most of their goods turnover.

It should be noted that the GUUAM members (apart from Ukraine) are far from strong countries in the economic sense, which naturally has an impact on their mutual relations, which are developing at a very slow rate. Fuel and raw materials predominate in the sectoral structure of most of the member states (with an underdeveloped refining industry), which limits the possibilities for inter- and intra-sectoral production and scientific-technical cooperation.

Just as important are the countries plans for developing the integration mechanism. GUUAM is thinking about forming its own free trade area, but with the low percentage of reciprocal goods turnover, the efficiency of such an area appears extremely dubious. Nevertheless, transborder projects (to be discussed below) are still of prime importance. These projects figure in GUUAMs founding documents as the purpose for creating this union. After all, there is absolutely no need to create special integration structures to carry out these plans, particularly since in this case the projects are not based on state investments, but on private capital and credit from international financial organizations.

So the first stereotype does not hold water.

Stereotype 2

This stereotype seems closer to the truth. It is enough to recall the circumstances in which GUUAM was founded. The idea for creating this multilateral union arose for the first time in 1996 in Vienna, where negotiations were being held on the Treaty on Conventional Armed Forces in Europe (or CFE Treaty). In 1997, at the Council of Europe summit in Strasbourg (France), the presidents of Georgia, Ukraine, Azerbaijan, and Moldova joined together to form the regional organization GUAM (Uzbekistan originally had the status of observer).

The main goals of this regional union were to fight ethnic intolerance, separatism, religious extremism, and terrorism; develop the Europe-Caucasus-Asia transportation corridor; promote integration into European structures, and establish cooperation with NATO within the framework of the Euro-Atlantic Partnership Council and the NATO Partnership for Peace program.

An intermediary stage in the formation of the organization can be considered the International Conference on the Revival of the Historical Great Silk Road (Baku, September 1998) at which the importance of the GUUAM countries as transit territories between the West and East was emphasized. But it was not until 24 April, 1999 that the new community was officially registered in Washington, at the NATO anniversary summit. It was no accident that such an important event took place precisely in the United States, since in its foreign policy, the GUUAM countries placed their stakes on the U.S. and European structures. Two years later in Yalta, the community was registered as an international organization, and in mid-2002, Uzbekistan suspended its membership in GUUAM, without giving a sufficiently coherent explanation for this.

It is symptomatic that GUUAMs founding documents were signed in the United States and France. The West supports this organization much more than the other regional structures of the CIS republics, and when it holds its summits it only receives greetings from western officials. The GUUAM members often play the western card even when carrying out their strictly regional tasks. For example, at the end of 2002, during meetings in Washington with George Bush, the president of Moldova, Communist Vladimir Voronin, actively discussed settlement of the Transdniester problem, although it would have been more logical to hold this conversation with the leaders of Ukraine and Russia.

At the same time, the claims of several Russian national liberals to Russias exclusive participation in the discussion and resolution by the GUUAM countries of their foreign political and economic problems are extremely dubious. Russia does not have the necessary financial and diplomatic resources for this today (nor will it have them in the near future).

Stereotype 3

Although it is related to the previous stereotype, it is important and thus applicable in its own way. Whereas the second stereotype is characterized by attempts to gain economic and political dividends, based on specific situations, from both sides, even if they do not directly oppose each other but are nonetheless attempting to realize their own interests in the south of the post-Soviet space, this stereotype is defined by playing on feelings of national self-awareness and self-identification. There is no place here for criticism from great power standpoints. In this respect, we consider the assessment of Yu. Kochubei, president of the Ukrainian foreign policy society, to be correct: Russia is ultimately the largest and most powerful country in the post-Soviet space, but its foreign policy does not always and completely coincide with the interests and orientation of the other CIS members. It does not coordinate its right with any of the CIS countries to create economically and politically advantageous transnational associations with other countries.1

But we should take a realistic look at the breakdown in primarily economic forces. Russia is a first-rank trade partner for all the GUUAM members. It attracts 42% of Azerbaijans export to the CIS countries, 50% of Georgias, 78% of Ukraines, and 76% of Moldovas (calculated according to CIS statistical data for 2000).

The connection between them will be much more tangible if we include data on the income of citizens from GUUAM states (apart from Uzbekistan) living in Russia. Russia has probably never had such a large number of legal and illegal workers from these countries before. These immigrants send billions of dollars converted from the rubles earned or obtained by criminal means to their homelands to provide for their families or in the interests of their own business. These new foreigners in Russia mainly earn their income in the construction business, working for transportation and municipal services, as vendors, and so on, jobs which Russian citizens are in no hurry to take. According to the estimates of academician Geets, a well-known Ukrainian economist, a Ukrainian citizen earns an average of $600 a month in Russia, no less than $400 of which he sends to his family. It stands to reason that no one today, either in the GUUAM states or in the Russian Federation itself, is anxious to give up this dependence on Russia.

Nor can we ignore the fact that, in contrast to the mass media and many ordinary citizens, Russian officials refrain from directly criticizing the dual nature of the GUUAM countries policy. They adhere to the spirit of Vladimir Putins formulation at the summit of the Commonwealth heads of state in August 2001: GUUAM does not weaken, but supplements the CIS It is of principal importance that regional associations work to strengthen the CIS.2

Stereotype 4

It is overstretching the point to say that GUUAM is a counterbalance to the EurAsEC. The EurAsEC countries account for 92% of the Commonwealths territory and 64.5% of its population, including 65.6% of those employed in the economy. They constitute 83.2% of the gross domestic product of the CIS republics, 82.7% of industrial production, 63.0% of agricultural production, and 83.2% of retail goods turnover. The EurAsEC countries produce and manufacture most of the fuel and energy resources, as well as the industrial production of the Commonwealth. For example, in 2000, their overall indices amounted to 93.3% of its oil production, 88.3% of its gas production, 79.9% of its electric power manufacture, 90.3% of its metal-cutting lathe manufacture, 92.8% of its passenger car manufacture, and so on.

Whereas GUUAM accounts for 32.4% of the CISs population, 16.2% of the gross domestic product, 17% of industrial production, 36% of agricultural production, and 16% of retail goods turnover. At the same time, it should be noted that in 2002, Ukraine and Moldova obtained the status of observer in the EurAsEC. But this does not mean that they are about to join this structure.

As the Ukrainian weekly Zerkalo nedeli (No. 2 of 18-24 January, 2003) notes in an article entitled A Chronic Exchange of Blows, during bilateral trade negotiations with Russia, Ukraine refused another offer to join the EurAsEC. However, Moscow believes it would be advantageous to Kiev due to cancellation of VAT on the price of gas, gas condensate, and oil delivered by Russia, that is, it would reduce their cost by approximately 20%. But the Ukrainian side is approaching the Russian offer from a broader standpoint. First, if it joins the EurAsEC, Ukraine would have to cancel the enormous number of anti-dumping sanctions it has imposed on other Russian goods. Second, and apparently most important, it is determined to join the EU and cannot be a member of two customs unions at once. In the previous issue of this same weekly, this topic was discussed with sufficient substantiation by experts of the Ukrainian Center of Economic and Political Research (UCEPR). As for Moldova, it is more interested at present in settling its relations with the Transdniester Republic, which has greater industrial and economic potential, and then talk about joining some particular group from an overall Moldovan standpoint, that is, the issue goes much deeper than interregional competitiveness.

At the same time, there can be no doubt that the unifying effect of joint projects is much higher in GUUAM at present than in the EurAsEC. And it seems to us that efficacious interaction between these two structures could be significantly raised precisely on the basis of developing and implementing major joint projects.

GUUAM Projects

The most important project being implemented within the association is cooperation in developing the hydrocarbon resources of the Caspian Sea and the export of raw materials via the TRACECA Eurasian transportation corridor that is being formed. It was initiated by the EU for organizing shipments between European and Asian countries via the Great Silk Road being revived for this purpose, thus bypassing the underused Trans-Siberian route and in so doing creating real competition with the latter. The TRACECA route links the ports of Ukraine, Rumania, and Bulgaria with the transportation corridors of the Southern Caucasus and then, via the Caspian, with the communication routes of Central Asia with subsequent access to China and the whole of East Asia. In addition to everything else, these projects also have an underlying political motive supported by the West: to oust Russia from the post-Soviet space by blocking its transit status and creating new transcontinental communication lines which bypass the Russian Federation.3

In 1999, the Baku-Supsa oil pipeline was opened, which connects the petroleum terminals of the Caspian with the port on Georgias Black Sea coast. This route, which was built on funds supplied by the European Union, created a certain amount of competition to the Baku-Novorossiisk route in operation, which passes through Russia. According to the estimates of specialists from the Transneft Company, Russias direct losses from being deprived of part of the transit of Azeri oil to the Black Sea ports amounts to $30 million per year.4 The Azeri side and its American partners are gaining from this project since tariffs along the short Georgian stretch of the route are 5-7-fold lower than the Russian rates. Georgia, which is receiving $7 million a year for the transit of Caspian oil, is also profiting from this.

As for the Baku-Ceyhan oil pipeline, it is attractive to Azerbaijan and Georgia, but has absolutely nothing of interest for the other GUUAM participants. Ukraine is actively promoting the idea of creating a Eurasian oil transportation corridor (EAOTC), a strategic transnational energy project, believing that all the countries of the Black Sea and Caspian region have immense interest in it, and due to the branching of this route, Odessa-Brody-Gdansk, Central Europe could obtain oil from other sources without it having to pass through Russia.

Other projects are also being developed, for example, those relating to restoring elements of the industrial defense complex inherited from the Soviet Union, thus ensuring independence from the Russian industrial defense complex and synchronous transfer to NATO standards.

GUUAMS Prospects

Ukraine is probably thinking most about the communitys prospects from the strategic standpoint, although Georgian politicians are actively exploiting the foreign policy component of this topic.

According to specialists from the UCEPR mentioned above, the main task at the current stage of GUUAMs development is transforming the political dialog into tangible practical results, primarily in the economy. The current level of cooperation in this sphere leaves much to be desired. None of the states in this structure places any particular priority on reciprocal trade relations, and the interest in cooperating in technology-intensive branches of the economy is dampened by significant gaps in the levels of innovative development of the member states, their limited financial resources, and limited access of their production to the world markets. From this we conclude that the following factors should enhance cooperation among the GUUAM states: coordinating conceptions for structural development of the national economies; engaging in active foreign policy aimed at attracting investments; and implementing large interstate cooperation projects.

Proposals for improving the activity of GUUAM contain both realistic and rather ambitious elements, including the following measures. First, drawing up a thorough feasibility study for creating a free trade area within the community without exemption (or keeping them to a minimum) for up to five years under conditions that would make a full-fledged free trade area throughout the whole of the CIS a more tangible reality. Second, coordinating economic policy in several branches, the joint development of which would meet the common interests of the GUUAM states (primarily in energy supply, transportation, the tourist and recreation business, and the food industry). Third, drawing up rules for transporting transit shipments through the territory of the member countries. Fourth, with the corresponding initiative of business circles in the member countries, reviewing the question of creating an international chamber of commerce and industry for GUUAM, which would promote the development of reciprocal trade among these countries and attract investments for joint projects. Fifth, entering a multilateral agreement on conditions for the mutual conversion of the national currencies of the member countries. Sixth, coordinating standpoints on key issues in the negotiation process on joining the WTO for those members of the organization that currently have the status of observer (Azerbaijan, Uzbekistan, and Ukraine). And finally, seventh, harmonizing the attitude of the member states toward creating a new international economic order, which is a topic of discussion at the forums of international organizations, primarily the U.N. and WTO.

We cannot help but draw attention to certain weaknesses in the organizational structure of multilateral cooperation within GUUAM. The Yalta Charter, signed in 2001, enforced the consultative nature of relations among the states, but does not regulate the organizational and control mechanisms for implementing the decisions made as thoroughly as necessary. And the Council of Foreign Ministers (as the executive body) and the Committee of National Coordinators (as the working body) do not have the efficacious levers needed to effectively implement economic decisions. This requires coordinating efforts among the economic, border, customs, and other departments of the member countries. All of this gives rise to doubts about the extent to which the current organizational structure of GUUAM can effectively and fully ensure coordinated interstate support of the pivotal cooperation projects of the five states.

In this respect, UCEPR experts propose creating specialized GUUAM agencies in compliance with specific cooperation priorities by involving business structures in specific projects in the energy, trade and economic, transportation-communication, financial, scientific, information, tourist, and other spheres; introducing the practice of holding regular working meetings of the ministerial and departmental heads (industry, power engineering, finances, transportation, telecommunications, science, education, tourism, as well as border and customs services) of the member states; organizing comprehensive evaluation of bilateral documents taking into account the specific priorities of multilateral cooperation in the Yalta Charter, and in particular reviewing long-term programs of economic cooperation with respect to strengthening areas that will promote the implementation of joint projects; and initiating the holding of an interparliamentary conference for coordinating standpoints, harmonizing the legislative base of the member countries, and establishing multilateral interparliamentary contacts.5

It is obvious that the organizational formation of GUUAM will continue for quite some time; and it will hardly be expedient to accelerate this process by forming a multitude of interstate and suprastate agencies (along the lines of the CIS and EurAsEC). Nor would it be expedient to take advantage of the experience of post-Soviet administrative-bureaucratic integration, rather it would be more sensible to turn to the European model, which envisages the gradual creation of executive institutions based on profile economic associations depending on the number of tasks to be carried out.

* * *

The subregional processes going on in the CIS make it possible to draw the following conclusions.

First, these processes are only partially related to attempts to reform the CIS as an international organization (EurAsEC, USRB), they are mainly aroused by the desire to assimilate the post-Soviet economic space by differentiating the interests of the former union republics and transforming this space by coordinating the given interests.

Second, the main possibilities for developing and enhancing interaction among the subregional formations do not lie in the sphere of interstate agreements or coordinated action among the subregional organizations themselves, since they are divided according to the principle of differences and similarities of national interests.

Third, the most promising line of interaction seems to be cooperation both between international and between national sectoral agencies and structures aimed at the development and joint use of a united energy system, gas and oil pipelines, as well as other elements of the transportation system and environmental infrastructure, although this kind of cooperation is unlikely to acquire a suprastate form.

And finally, the fourth conclusion is that specific business structures will most likely become the main supporters of this interaction, which are mainly interested in profit and not institutional affiliation. These are primarily joint stock companies for producing, refining, and transporting fuel and raw material resources and cooperating in the manufacture of production of the industrial defense complex and dual use high technology, transnational commercial intermediary companies, as well as large national and transnational banks and commodity and currency stock exchanges.


1 Yu. Kochubei, GUUAM and Equal Regional Corporation, Central Asia and the Caucasus, No. 2 (14), 202, p. 103.
2 Quoted from: N.S. Ziiadullaev, SNG: Doroga v tretie tysiacheletie, Moscow, 2002, p. 158.
3 See: Protsessy integratsii na postsovetskom prostranstve: tendentsii i protivorechia, RAS Institute of International Economic and Political Research, Moscow, 2001, p. 108.
4 Ibidem.
5 See: GUUAM posle yaltinskogo sammita: realii I perspektivy, Zerkalo nedeli (Ukraine), No. 25, 7-13 July, 2001.

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