EURASIAN ECONOMIC COMMUNITY: THORNY PATH OF DEVELOPMENT

Rafael ULTANBAEV


Rafael Ultanbaev, Ph.D. (Econ.), leading researcher, Center for Foreign Economic Studies, Russian Academy of Sciences (Moscow, Russia)


What Unites the EurAsEC Countries

Integration within the EurAsEC framework rests on the coinciding basic interests of its member states in their awareness of the need to ensure sustainable socioeconomic development and security, and to find a fitting place within the world community by taking advantage of the opportunities offered by integration. The members of the alliance aim to realize its regional potentialities for joint adaptation to the political and economic realities of todays world, to use the advantages of globalization and mitigate its negative effects.

The EurAsEC members realize that reorientation toward the West, where there is virtually no demand for their products (with the exception of some primary commodities), could lead to economic degradation and a destruction of the high-technology sectors of their national industries.

At the present level of economic and technological development, autonomous efforts to enter the world market by individual EurAsEC countries could turn them into a raw material outskirt of the world economy. That is why the allies are planning to reduce the inevitable costs of globalization by pooling their efforts and resources in order to solve their common problems and coordinate their activities in the world market, especially with regard to the WTO.

The motive behind the establishment of the EurAsEC is the desire of each member country to realize its economic potential, to offset the difficulties of its development and make up for the deficiencies of the production structure. A number of objective prerequisites help the Eurasian Five to advance in this direction. These include not only their common history, but also their potentially large market, their economic relations dating back to the days of the single economic complex, complementary raw material resources, compatible industrial, engineering and consumer standards, and a single transport and communications infrastructure.

The disintegration of the traditional economic system has led to a shutdown of many enterprises and to a decline in trade between the republics. The Community partners are interested in creating a full-scale Eurasian market so as to proceed, on its basis, to restore and develop their mutually beneficial ties on the level of industries and lines of production and to arrange close cooperation between enterprises.

The Eurasian Economic Community is the biggest regional association in the CIS. Its member countries have a large natural and economic potential and a receptive market, which gives them substantial competitive advantages and makes it possible to regard them as a kind of core of the Commonwealth.

Computations of general economic indicators per head of the population give a fuller idea of the economic development level of subregional associations (see Table 1).

Table 1

Per Capita Indicators for Regional Associations of CIS Countries in 2000 (CIS average = 100%)1

Regional associations

Gross domestic product

Industrial output

Retail turnover

Foreign trade turnover

Union State of Belarus and Russia

136.8

136.1

140.5

126.5

EurAsEC

126.6

125.9

126.9

120.2

GUUAM

49.4

51.8

48.4

56.1

CAC

55.4

51.8

47.7

57.8

However, the economic potential of the EurAsEC countries is being used ineffectively, and the current level of their integration (as a mode of joint economic activity) cannot reverse the negative trends or spur economic growth in each of the five countries.

The common economic interest of Russia and its EurAsEC partners in integrating their key industries is largely determined (and will continue to be determined) by the profound interdependence of their national economies that took shape in the preceding decades. Thus, about three-quarters of all the production ties of the former Union republics were pivoted on Russia. According to estimates, Russian deliveries enabled Belarus to produce 84% of its final product, and Kazakhstan, 52%.2 Russias former ties with its partners have to some extent been preserved until today. This is evident from an analysis of their mutual trade (see Table 2).

Table 2

Share of EurAsEC Countries in Mutual Trade in 20013

 

Foreign trade turnover

Exports

Imports

Percent of total for:

CIS

EurAsEC

CIS

EurAsEC

CIS

EurAsEC

             

Belarus

16.1

31.9

15.0

28.0

17.1

35.7

Kazakhstan

9.5

16.8

8.8

13.4

10.1

20.1

Kyrgyzstan

0.7

1.0

0.6

0.8

0.8

1.2

Russia

40.7

49.1

48.3

57.1

33.8

41.5

Tajikistan

1.2

1.2

0.7

0.8

1.6

1.5

Total for EurAsEC countries

68.2

73.4

63.4

The EurAsEC share in mutual trade between the CIS countries is 68.2%. In the Eurasian market, Russia accounts for 49.1% of all trade operations, Belarus, for 31.9%, and Kazakhstan, for 16.8%. Foreign trade relations between various Community countries have been developing with different degrees of intensity. Thus, Russia is the main partner of Belarus and Kazakhstan; Russia and Kazakhstan are the main partners of Kyrgyzstan and Tajikistan, and Belarus and Kazakhstan, of Russia.

Russias consistent line toward integration with the EurAsEC countries is due, first and foremost, to its desire to maintain and develop the existing economic ties, specialization in various lines of production and cooperative deliveries, which helps to make fuller use of the economic potential and to strengthen the security of the Community states. Russia also needs to ensure uninterrupted operation of traffic arteries linking it with its CIS partners and, through their territory, with third countries in order to realize its transit potential. Moreover, it is in Russias interests to help increase the freight flow from Kazakhstan and other Central Asian countries, and eventually from China to Europe. Russian producers are also highly interested in the large Eurasian market. The importance of Russias cooperation with the EurAsEC countries will increase in view of the need to reduce the raw material orientation of its exports.

The EurAsEC countries mutual interest in cooperation is best manifested by their relations with Russia, their main trading and economic partner. Thus, the striving of two fraternal countriesRussia and Belarusto build a union state is an indication of their coinciding geopolitical, economic and humanitarian interests. They are soon to complete the preparation of a Constitutional Act laying down the basic principles of the new state, and also the establishment of a common customs area, and are working to harmonize their legislation and to introduce a single currency.

The main trading partner of Belarus is Russia (59.4% of the republics total foreign trade turnover). In 2002, trade between them was close to $10 billion. Next comes Kazakhstan. Belarus is traditionally dependent on imports of mineral raw materials, energy resources and certain kinds of food products. An overwhelming part of the raw material resources is supplied by Russia, Kazakhstan and other CIS countries. Belarus, for its part, has been supplying many Russian enterprises with parts and components, and the Russian market, with finished products of the chemical and petrochemical industry, engineering, electronics and metallurgy. Mutually beneficial technological and cooperation ties have taken shape between industrial structures in the two countries. Unless these ties are maintained, many enterprises will simply grind to a halt.

Integration in the fuel and energy complex is being deepened. Joint ventures have been set up for oil supply and refining and for the sale of oil products (LUKoil-Belarus); a group of companies is in operation as part of the Slavneft holding company; the Belarus section of the Yamal-Europe gas pipeline has been completed; and work is in progress to build new gas pipelines running across Belarus to Far Abroad countries.

Russian companies have shown an interest in investments in oil refining, electric power generation, truck making, production of potash fertilizers, and the brewing industry of Belarus. Relations on a regional level are also very intensive: today over 80 Russian regions and republics maintain active trade and economic ties with Belarus.

Cooperation between Russia and Kazakhstan covers a wide range of areas: trade and economic ties, production specialization and cooperation, joint work on the development of the northern part of the Caspian Sea, joint use of the Baikonur space-launch complex, production and transportation of oil and gas. The economic importance of Kazakhstan to Russia is determined by its abundant mineral resources, which provide the basis for many Russian chemical and metallurgical plants. About three-quarters of the ores, over one-half of the mineral fuel and about one-half of the metal compounds imported by Russia come from Kazakhstan.

For Kazakhstan, the Russian market is of paramount importance in view of its territorial proximity and the existing sectoral structure of the economy. Russia accounts for about one-third of the overall volume of the republics foreign trade. Integration between the two countries has made considerable headway owing to the oil and gas alliance they are now working to set up and to joint ventures in the Caspian. Joint development of the Caspian shelf has opened up new prospects for cooperation in the transportation of hydrocarbon materials to the world market. In 2002, the two countries signed agreements on long-term transit of Kazakhstan oil through the territory of Russia, and a joint venture, KazRosGaz, has been set up for joint entry into the European energy market.

In the field of thermal power, a joint venture with the participation of RAO Unified Energy Systems of Russia is being established on the basis of the Ekibastuz GRES-2 power plant. This will benefit both countries: Ekibastuz coal makes it possible to produce relatively low-cost electric power, which enables the partners to supply it to Western Europe.

Finally, the need for close cooperation between the two countries is dictated by the very length of the land border between them: 6.5 thou km. Half of Kazakhstans regions border on 12 administrative-territorial entities of the Russian Federation. Border trade constitutes about 60% of Russias overall trade with that republic.

Economic relations with the EurAsEC countries are also of substantial importance to Kyrgyzstan. These countries account for about one-third of its total foreign trade, including Russia with 15.9% and Kazakhstan with 12.8%. Russian enterprises are interested in deliveries of Kyrgyz mercury, tin, palladium, tungsten, and also of engineering and electrical products.4 Cooperation in the production and processing of uranium, other nonferrous and noble metals and other strategic materials is getting underway. RAO UES of Russia and Kyrgyzstans OAO Elektricheskie Stantsii have evaluated the possibilities for financing the reconstruction and modernization of the Uch-Kurgan and At-Bashi hydroelectric power stations and of the Toktogul hydropower system. Russias ZAO Tekhmashimpeks is taking part in a tender for the construction of the Kambarat GES-2 hydroelectric power station, is completing a feasibility study for the Kara-Keche open-pit coal mine, and is working to set up a joint venture in electric power generation. Russian companies have been taking part in the privatization of enterprises in the republic with payment in bills of exchange issued by Kyrgyzstans Ministry of Finance in repayment of the government debt owed to Russia.

Tajikistans interest in the Eurasian market and the prospects of cooperation with its Community partners are determined primarily by its rich mineral resource base. The republic has reserves of more than 40 kinds of minerals, including lead, zinc, boron, silver and uranium, and also a number of processing enterprises.5 Supplies of Tajik aluminum, lint cotton and wool for the textile industry are also of interest to the republics EurAsEC partners. In 2001, its trade with the Community countries amounted to $338 million, or 25.2% of its total foreign trade, including 17.5% with Russia and 6.9% with Kazakhstan. But the level of economic cooperation falls short of the republics potentialities. With Russias help, it could gear up production at many enterprises, whose position has worsened in view of the rupture of economic ties. It is in need of investments in cotton growing, gold mining, the transport infrastructure, etc.

The Eurasian partners are also brought together by their geographical proximity, their traditionally diverse interregional and border contacts, and their common infrastructure, primarily in energy, transport and communications. Another major factor of integration is the need to maintain and develop the historically shaped common educational, scientific, cultural and information space. The course toward consolidation and closer interaction is also due to the need for cooperation in the interests of security and stability in the Eurasian region. Confronted on their southern borders with a large-scale offensive by international terrorism, armed extremism and drug trafficking, the EurAsEC countries have come to regard these realities as a common threat from which they cannot take cover behind national borders. These threats are particularly palpable in Tajikistan, Kyrgyzstan and Kazakhstan. While developing cooperation in the widest format, the Eurasian Five have paid special attention to interaction under the Collective Security Treaty, in matters relating to their borders, and in the establishment and operation of collective rapid deployment forces. In addition, political and military-technical ties in the interests of stronger national security help to develop cooperation in the economy, in the scientific, technical and other fields.

Common Development Goals

The Eurasian Five have kept adjusting the course of their cooperation and formulating new tasks for a transition to ever higher stages of cooperation. Thus, at the initial stage of integration it was necessary to create a common customs area, and subsequently, as the partners gained experience, this goal was upgraded to the creation of a common economic space. However, the setting of new integration targets does not mean that the alliance members have already achieved all their earlier formulated objectives. A characteristic feature of cooperation between the EurAsEC countries is that institutional transformations in the Community have always outrun actual integration processes.

The starting point for the establishment of the new subregional association was the Customs Union Agreement between Belarus and Russia, signed on 6 January, 1995, and subsequently joined by Kazakhstan (20 January, 1995), Kyrgyzstan (29 March, 1996) and Tajikistan (26 February, 1999). On 29 March, 1996, the Customs Union partners concluded a Treaty on Deepening Integration in the Economic and Humanitarian Fields, which provided for the eventual establishment of a community of integrated states.

In their desire to overcome the consequences of the 1998 financial crisis through closer scientific, technological and production ties and greater economic complementarity, the Customs Five took additional measures to accelerate the pace of integration. With this aim in view, on 26 February, 1999, they signed a Treaty on a Customs Union and a Common Economic Space. That document was a logical extension of the Treaty of 29 March, 1996. It was based on the experience of economic cooperation gained by the partners and on their increased economic opportunities in the conditions of incipient economic growth. The Treaty stated the desire of its signatories not only to complete the formation of the Customs Union, but also to continue along the path of integration toward a common economic space.

In building the Customs Union, the five countries lifted tariff and quota restrictions in mutual trade, introduced common customs tariffs for most goods, agreed on nontariff regulation measures with regard to third countries, and began developing uniform trade regimes and creating a common customs area. In the course of this work it turned out, however, that it was first necessary to create a mechanism for coordinating trade policies, especially in the sphere of tariff and nontariff regulation. Attempts to use tariffs for improving crisis management in the economy objectively induced the partners to adopt unilateral and uncoordinated measures. The situation was compounded by the ineffective mechanism for implementing international treaties and agreements. Moreover, the basic documents adopted within the framework of the Customs Union were of a relatively general character.

In order to remedy these shortcomings, on 10 October, 2000, the heads of state of the Customs Five signed a Treaty on the Establishment of a Eurasian Economic Community, which laid the groundwork for raising their cooperation to a qualitatively new level. On a number of points, the new interstate association is fundamentally different from the Customs Union and other organizations established within the CIS framework to date. Its main distinctive feature is a specially devised mechanism for adopting and implementing joint decisions and agreements. Documents signed by all Community members are implemented through the adoption by each state of regulatory acts in accordance with national legislations. Control over the performance of jointly assumed obligations is exercised by Community bodies within the scope of their authority. Such a procedure is designed to ensure a unified approach to the implementation of measures resulting from signed treaties and agreements.

The member countries have established a new decision-making procedure based on the principle of weighted voting and proportional financing of the Community budget. Whereas in the Interstate Councilthe highest authority of the EurAsECall decisions are made by consensus (except decisions on suspension of membership or expulsion from the Community, which are adopted on the consensus minus one principle), decisions in the Integration Committee and the Commission of Permanent Representatives are adopted by a two-thirds majority. In the absence of such a majority, the matter is referred to the Interstate Council. The number of votes assigned to each Community country matches its economic potential: Russia has 40% of the votes, Belarus and Kazakhstan, 20% each, and Kyrgyzstan and Tajikistan, 10% each.6

To enhance the efficiency of the work being done to bring closer together and unify their national legislations, the partners have reorganized the Interparliamentary Committee into an Interparliamentary Assembly with broader powers, and have set up a Council of Justice Ministers. In place of the earlier developed model legislative acts, which were of a recommendatory nature, the Interparliamentary Assembly is to develop the fundamental principles of legislation in the key areas of legal relations. The activities of a newly established Court of the Community are to contribute to the implementation of joint decisions. Its purpose is not only to ensure uniform application of EurAsEC treaties and other documents, but also to hear economic disputes between the member countries regarding the implementation of these documents.

The transformation of the Customs Union into a Community with international legal personality subject to registration with the United Nations is a major step in raising the prestige and influence of the EurAsEC in relations with other international legal entities and in ensuring its access to world markets.

In the period ahead, the main efforts of the Community countries are to be aimed to complete the establishment of a free trade regime, to develop a common customs tariff and a single system of nontariff regulation measures, to create a payment and settlement mechanism and a unified customs control system, and to fortify and equip the Communitys external borders.

First Results

The Customs Union has shown itself as the most advanced and steadily developing regional grouping in the Commonwealth. In spite of difficulties in arranging integration processes and the negative impact of the world financial crisis, its participants have achieved some positive economic results. In particular, by stepping up their trade and economic cooperation they have managed to mitigate the effects of that crisis, to simplify customs control procedures on their internal borders, to lay the groundwork for a common customs tariff, and to agree on the principles for applying safeguards in trade. Major steps have been taken toward a coordinated fiscal policy and toward the establishment of uniform mechanisms for regulating the economy. The partners have gone over to the country of destination principle in levying indirect taxes in mutual trade and have agreed on a basic list of excisable goods. They have also signed an agreement on measures aimed at attaining mutual convertibility and stabilizing the exchange rates of their national currencies, and at avoidance of double taxation. This has created conditions for the development of a common payment and settlement system, which will enhance the efficiency of mutual payments and settlements and help to strengthen the national currencies of the member countries, eventually serving to invigorate mutual trade.

The initial steps have been taken to establish a Transport Union and to ensure the interconnection of national power grids. In order to unify control of customs services, the partners have opened customs missions and have established (on 24 February, 1998) a Council of the Heads of Customs Services. As an interdepartmental body, the Council is entitled to deal with matters of harmonizing and unifying customs clearance and control technologies, rules and procedures.

In view of Kyrgyzstans unilateral accession to the World Trade Organization (December 1998), the Customs Union countries took a decision to work out a common stand at the talks on WTO accession. Bishkeks move has complicated the practical implementation of treaties and agreements concluded within the framework of the Union and has had an adverse effect on the mutual trade of its member countries.

Over the past few years, the members of the Customs Union have markedly increased their mutual trade. Thus, in 1994 it was $13 billion, and in 2000, $29 billion. The rate of its growth was highest in 1995-1997, which was largely due to the lifting of restrictions in mutual trade. A point to note here is that trade within the Customs Union grew faster than within the CIS as a whole.

The following two years brought a substantial decline in mutual trade under the impact of the financial crisis and other negative factors. But in 2000 there was a sharp rebound in trade volumes, which largely offset the downturn of 1998-1999. The worsening situation in the world energy market led to a slowdown in the growth of trade operations of the EurAsEC countries. In 2001, their total exports fell by 2.5% compared with 2000, while imports were 16.7% higher. In mutual trade, however, exports rose by 2.0%, while imports fell by 0.2%. The overall trade balance of the Community countries in 2001 remained positive, but compared with 2000 the figure was down by 15% to $61 billion. At the same, the balance in mutual trade between the EurAsEC countries remained negative, even though it decreased from $0.8 billion in 2000 to $0.5 billion in 2001. The deficit was mostly due to an excess of imports over exports in Belarus and Kazakhstan, primarily from trade with Russia. Kazakhstans foreign trade increased by 5.9%, notably by 9.5% with the EurAsEC countries; the respective figures for Russia were 3.6% and 0.1%. At the same time, there was a decline in foreign trade figures for Belarus, Kyrgyzstan and Tajikistan. In Belarus, the overall trade turnover fell by 2.7%, and with the EurAsEC countries, by 5.6%; in Kyrgyzstan it fell, respectively, by 10.9% and 5.6%, and in Tajikistan, by 8.3% and 27.5%.

One of the reasons for the decline in trade within the EurAsEC framework is that over the past three years the advantages of trade liberalization and devaluation of national currencies in the wake of the 1998 financial crisis have been exhausted. The increase in mutual trade at the expense of the cost factor has reached a limit (the prices of goods in mutual trade have risen to world levels and have often even surpassed them). Another contributory factor is the decline in world prices for energy resources and metals.

The development of trade in the Community market is also held back by the inadequate level of industrial production, low competitiveness of goods, and lack of tangible improvements in structural policy and production cooperation. Trade could be developed on the basis of transnational corporations and financial-industrial groups, but these modern integration mechanisms have yet to be brought into full play. Cooperation ties are poorly developed, and there are no perceptible changes in the investment activities of individual member countries in each others markets. Among the factors dampening mutual trade one could include the still unresolved problems in payment and settlement relations, inadequate unification of customs procedures, and poorly coordinated trade policy with respect to third countries.

Contradictions

The record of the Customs Union shows that its formation is a complicated and contradictory process requiring much time and effort. Progress is mostly obstructed by the conflicting interests of the Community states stemming from their dissimilar production structures, different levels of economic development and market entry, and different currencies (in terms of convertibility and stability), and also by the partners inconsistent and uncoordinated moves. In addition, the EurAsEC countries differ widely in terms of natural resources, dependence on external ties, living standards, and contribution to the aggregate economic potential. All of that affects the coordination of the partners economic interests.

In terms of economic potential, the dominant position in the Community belongs to Russia, which accounts for 89.3% of its GDP, 82.0% of industrial output, 80.8% of agricultural output, and 90.4% of retail trade. Then come Kazakhstan and Belarus. Within the alliance, these three countries constitute a group that is relatively more developed economically: their main per capita indicators are fairly close to each other, while those of Kyrgyzstan and Tajikistan are times lower. Thus, per capita GDP (by purchasing power parity of national currencies in USD) in relation to the EurAsEC average in 2000 was 107% in Russia, 106% in Belarus, 80% in Kazakhstan, 35% in Kyrgyzstan, and 15% in Tajikistan. In addition, the coordination of trade policies, customs tariffs, exemptions from free trade, use of safeguard measures to protect the domestic market, and a common stand on WTO accession is also influenced by the degree of the Community countries involvement in mutual trade and in trade relations with third countries.

In an attempt to uphold their economic interests, some members of the Customs Union have sometimes taken unilateral action in breach of common understandings, say, by closing borders, imposing import duties, prohibiting import of goods, restricting access for nonresident banks to domestic foreign exchange markets, etc. The partners conflicting interests have had a particularly strong impact on the efforts to negotiate a tariff policy, since this affects budget revenue and protection of domestic producers. They managed to harmonize only about 60% of the tariff rates applied to goods imported from third countries. These are effective in Belarus, Kazakhstan and Russia. It has been decided that Kyrgyzstan and Tajikistan are to join the efforts to draw up a common customs tariff step by step.7

In recent years, the governments of the EurAsEC countries have adopted a number of decisions in the field of foreign trade which have widened the differences over the agreed rates of customs duty. A renewed effort to draft a common customs tariff schedule in the troika formatBelarus, Kazakhstan and Russiahas made it possible to harmonize 56% of the tariff rates. This draft includes over 80% of all the tariff rates for the group of food products and 89% for the group of mineral products, although the level of harmonization for high value added goods, including engineering products, is still low (only 11%). Some progress in this area has been achieved owing to the decision by Belarus to introduce (from 28 June, 2002) a new Customs Tariff of the republic harmonized with the Russian tariff.

As regards a common customs tariff in the format of a group of four with the participation of Tajikistan, its preparation has run into difficulties. Acting in defiance of earlier understandings, from 30 April, 2002, the government of Tajikistan imposed a uniform rate of import duty amounting to 5% of the customs value of goods. According to preliminary estimates made by the Integration Committees Secretariat, that move has led to a decline in the level of harmonization between Tajikistans customs tariff and the draft of the EurAsECs common customs tariff schedule to 41% (instead of 58% under the earlier arrangement), which creates additional problems in the further efforts to coordinate a common customs tariff for the Community.

Considerable difficulties have also arisen in coordinating the range of so-called sensitive products, which affect most of the commodity nomenclature of foreign economic activity (such goods are present in 77 commodity groups out of a total of 97). The parties are looking for trade-off approaches to reassessing the degree of sensitivity with a view to reducing the share of these goods from 15% of each states total imports to 10%, and also for a possible unification of their schedules.

The development of a common trade regime with regard to third countries remains a complicated problem. Steps are being taken to draw up a single list of goods to be exempted from the Community countries free trade with CIS countries which are not members of the EurAsEC. But some participants in the Eurasian market do not think it possible to revise their bilateral agreements in this area. Thus, Kyrgyzstan has declared that the consolidated tariff rates adopted within the WTO framework do not allow the republic to approve the proposed rates of import duty, while changes in the regime of free trade with Uzbekistan are fraught with retaliatory measures, which could worsen mutual trade and economic relations. The proposed measures do not suit Tajikistan either, because they cover imported goods which affect the revenue side of the republican budget and protection of the interests of national producers.

Another recent problem is growing competition within the Community itself. The volume of trade here could have been larger were it not for the antidumping barriers within the alliance. Having coordinated the mechanism for the use of special antidumping and countervailing measures in trade with third countries, some EurAsEC members have sometimes applied these standards in mutual relations as well.

Kazakhstan has been the worst offender in this respect, introducing more than 10 safeguard measures against Russia and Kyrgyzstan. Their victims include Russian and Kyrgyz suppliers of chemicals, textiles and other goods. Russia, for its part, imposed restrictions on the delivery of caramel from Kazakhstan, while Kyrgyz exporters have in effect been reselling Chinese goods.

In 2001, Moscow and Astana lost over $100 million as a result of mutual restrictions (with a total trade turnover of $4.7 billion). The losses of Russian producers from these restrictions amount to about $50 million. They could increase still further in view of investigations initiated by Kazakhstans authorities against Russian suppliers of confectionery, carpets and glass containers.8 Russias Ministry of Economic Development responded by drafting a list of Kazakhstan products against which it could apply trade sanctions. An antidumping investigation against Kazakhstans galvanized steel, whose annual deliveries to Russia are estimated at around $60 million, is nearing completion. Competition over similar goods in the markets of other Community countries is expected to intensify. In these conditions, their authorities could be further tempted to protect their own producers against those of their neighbors.

The situation around the antidumping war was discussed at a meeting of the Interstate Council on 13 May, 2002. The EurAsEC members declared such practices to be harmful to further integration and decided to abandon them altogether. For the time being, however, the Community countries do not know how to protect their domestic markets against each other without antidumping duties. They have yet to develop a mechanism for their protection without the use of special antidumping or countervailing measures against their partner countries and for resolving contradictions in order to avert a trade war within the EurAsEC itself.

The present mechanism of interaction between the allies does not allow them to fully coordinate their positions at the talks on accession to the WTO. Numerous differences, especially as regards customs duties, make it difficult for them to work out a common stand on this issue. These problems were first discussed back in the days of the Customs Five, but today there are just as many differences as before.

In order to create the necessary prerequisites for an advance toward a common position, the Community countries have agreed to step up their efforts to frame a common customs tariff, primarily with respect to sensitive goods, which must provide a reference point for the negotiation process. Considering the high degree of sectoral diversification in Russias economy and its resource potential, the partners have decided to take its position on accession to the WTO as a basis for the negotiations of other Community countries seeking to join that organization. However, no concrete mechanism for coordinating their positions on this issue has yet been developed, which makes it difficult to formulate a common stand on WTO accession.

Development Prospects

In assessing the results of cooperation between the EurAsEC member states, one could draw the conclusion that the partners are still at the very beginning of the road leading to the projected goal: a common economic space. Their integration has not yet received sufficient impetus from the production and investment sectors of the economy, and actual integration processes lag behind their legal formalization.

That is why the results of Community activities are far from straightforward or free of contradictions. There is a trend toward a reduction in the share of mutual trade in the overall volume of the Community countries foreign trade (from 17% in 2000 to 15.8% in 2002). Primary commodities and low value added products constitute a substantial part of the total, which is hardly conducive to the development of integration ties.

For a number of reasons and despite certain achievements, the alliance countries are still at the stage of creating a free trade area. The processes of establishment of a Customs Union and coordination of trade policies with regard to third countries are still far from completion. Much has yet to be done to finalize the establishment of a common free trade regime, which now operates mostly under bilateral agreements. Nor do the Eurasian Five have a common customs tariff: so far they have managed to harmonize just over 60% of all tariff rates covering roughly one-half of the trade turnover between the Community countries and mostly confined to Belarus, Kazakhstan and Russia.

Finally, one should note that the level of economic integration remains quite low. This is evident from the share of trade between the Community countries in the total volume of their foreign trade. Belarus alone has managed to arrange relatively stable trade relations with the other Community countries, whose share adds up to 59.7% of its total foreign trade. The figures for the other four countries are much lower: 32.5% for Kazakhstan, 30.5% for Kyrgyzstan, 25.2% for Tajikistan, and 10% for Russia. Moreover, these relations form an asymmetric radial pattern, since they are mostly concentrated on bilateral ties with Russia, which also shows the limited scale of multilateral integration activities. That is why trade between Belarus, Kazakhstan, Kyrgyzstan and Tajikistan in many areas is of little significance to their economies. The share of mutual trade between these countries in the overall volume of their foreign trade ranges from 0.1% to 12.8%.

One of the main reasons holding back the development of trade and economic relations between the partners is the incompleteness of their economic reforms and, as a consequence of that, their undeveloped market economies. This hinders mutual access of industrial, commercial, financial and insurance capital to the markets of the partner countries, reduces the effectiveness of economic ties, and slows down the introduction of deeper integration forms and mechanisms.

Another major reason for the less than full use of integration possibilities is the different pace and direction of economic reforms. In terms of structural transformations, the five countries differ markedly from each other. Kazakhstan, Russia and Kyrgyzstan have moved farthest in this direction. Belarus is in no hurry to press ahead with reforms, preferring the evolutionary variant of transformations, and Tajikistan is a country with a postwar economy. Given the troubled political situation in that republic and the persistent external threats, full-scale economic liberalization there is hardly possible in the near future.

That is why the advance toward a uniform mechanism for regulating the economy in the EurAsEC countries with a view to creating a common economic space is directly dependent on the stage of market-oriented reforms in each country and on their concerted implementation.

The prospects for deepening integration depend, among other things, on a well-coordinated structural adaptation of the Community countries economies, more intensive specialization and cooperation in the real sector, and also on the interaction between the national monetary and financial systems and the establishment of a joint payment system. They will have to create a common energy and transportation market and to develop programs in priority areas of production, science and technology.

Lack of agreed decisions in the field of economic policy impede the establishment and activities of financial-industrial groups, transnational corporations and other effective associations. As world practice shows, it is precisely such structures that act as locomotives of integration processes. Creation of equal conditions for entrepreneurial activity and for a pooling of the financial assets of banks, insurance and trading companies will enable industrial enterprises to enjoy certain benefits in the form of preferential credits, to make their products more competitive with the help of new technologies, guaranteed supply and marketing, and a simplified system of mutual payments and settlements.

In the transition period, economic growth is one of the main conditions of strengthening and developing the newly independent states. Until recently, sale of raw materials was the only opportunity for the EurAsEC countries to support their industry, agriculture and social sphere. That is why they are highly dependent on world prices for oil, gas and metals. The partner countries will have to make an effort to overcome the raw material factor and the dependence on fluctuations in world prices on commodity exchanges. Global economic instability and sharpening competition in commodity markets induce the partners to take a fresh look at the processes of economic integration. In the conditions of an economic recovery, they will have to get down in real earnest to cooperation in the field of industrial conversion, diversification of the economy, construction of new and modernization of existing processing plants, and to create conditions for raising the competitive capacity of industry, which is highly important for countries seeking accession to the WTO. This applies, first and foremost, to science-intensive and high-technology industries, which should be used to lay the groundwork for deeper integration and faster economic growth.

The future of the EurAsEC will depend on the practical results in stepping up cooperation in the real sector and in building a viable integration structure. For the time being, lack of coordination in transport tariffs is a serious handicap to closer ties. High and non-unified railway rates make goods uncompetitive. The partners often obstruct each others access to world markets, competing among themselves in deliveries of goods. They must learn to work together in meeting various challenges, to synchronize their decisions and try to implement them in the context of globalization of the world economy. This applies to harmonization of customs tariffs, mechanisms for protecting national producers, antidumping investigations against Eurasian goods in Western markets, and coordination of pricing policies on energy resources and products of other industries. All of this can turn the EurAsEC into an effective structure to be reckoned with throughout the world.

In assessing the Communitys prospects, one should also take into account the effect of such a geopolitical factor as the division of the post-Soviet space, especially Central Asia, into spheres of influence. Against the background of a worsening crisis in Afghanistan and an intensifying struggle against international terrorism, the U.S.A., the EU countries, Pakistan, China, Turkey, Iran and other countries concerned stepped up their activities in that region. The CIS republics have not remained on the sidelines either. Apart from Russia, which has its own interests in this area, a number of Commonwealth countries have been trying to strengthen their influence in the region, each having its own views on the development of the EurAsEC and on the possibility of drawing dividends from participation in the Community.

At the same time, the Communitys future will in large measure be determined by Russias policy, its desire to consolidate the partners efforts to deepen integration and build an effective interstate association in the interests of their socioeconomic development and security. Over the past few years, Russias policy in the post-Soviet space has been ever more constructive and pragmatic. Russian business is also turning into an essential factor of strengthening integration processes in the Commonwealth. Up to now it has mostly invested in the production, transportation, sale and processing of raw materials, but there are plans for its participation in expanding telephone and telecommunications networks and engineering plants in the EurAsEC countries. There is also a trend toward more active involvement of Russian companies in the development of information technologies and in servicing freight and passenger traffic.

In order to create a common legal framework, the Community partners have yet to go a long way to dovetail their national legislations, because there are still many fundamental differences in this area concerning economic activity. In this context, an important problem for the Communitys future is that of implementing multilateral decisions and understandings. The member countries will have to agree on a single set of rules and procedures for translating these into national decisions on the level of heads of state, government and parliament. The need to work out a common stand on accession to the WTO is of essential importance for the Communitys prospects. Kyrgyzstan has already joined that international organization, Russia and Kazakhstan are conducting negotiations to that effect, and Belarus and Tajikistan are potential participants in this process. Uncoordinated steps to open up the markets of goods, capital and services to WTO countries could cause substantial damage to the economy of the other EurAsEC countries. That is why it is so important to accelerate the work being done to harmonize customs duties and the foreign trade regime in line with WTO standards.

The five countries should start from the assumption that their Community, far from being a counterweight or alternative to the CIS, is capable of acting as a locomotive of cooperation within the Commonwealth format, primarily in the economic sphere. They should not fence off their emerging common market by trade barriers from the other CIS countries, but should look for ways to resolve common problems through cooperation with GUUAM, CAC and the incipient Union of Four.

Practice shows that from the standpoint of geopolitics, developing globalization processes and all-out integration, the EurAsEC is an objective necessity and reality. The Community is an adequate response of the alliance partners to the challenges of our day, and in the long run it has every chance to become a full-fledged interstate political and economic association and a significant factor in the world economy.


1 See: Ekonomika SNG, Sixth Edition, Finstatinform, Moscow, 2001, pp. 52-57.
2 See: Rossiagosudarstva SNG: vzaimodeistvie v bazovykh otrasliakh promyshlennosti, Ekonomika, Moscow, 2001, p. 10.
3 See: Statistika SNG, No. 3, 2002, pp. 71-72.
4 See: V.S. Vishniakova, Osnovnye printsypy i napravlenia razvitia ekonomicheskoi integratsii v Rosii s gosudarstvami Srednei Azii, Elektronnaia promyshlennost: ekonomika i kommertsia, Nos 3-4, 1998, pp. 34-35.
5 See: D.V. Orlova, Rynok mineralnogo syria Tadzhikistana, Marketing, No. 3, 1998, pp. 112-114.
6 See: Informatsionniy biulleten EvrAzES (Almaty), No. 1, 2001, p. 13.
7 See: N. Isingarin, 10 let SNG. Problemy, poiski, resheniia, St. Petersburg, 2001, p. 279.
8 See: Vedomosti, 14 May, 2002.

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