Sink or Swim: Can the EAEU Survive for the Long Haul?

Russia is the world’s largest country by land area, with a proud history of sovereign statehood dating back centuries. It is one of the foremost economic and political powers of the last 100 years, though recent falling oil prices and international sanctions against the country over its aggression in Ukraine have destabilized the ruble. To the west, neighboring Belarus is a small, landlocked country whose territory has been carved up or engulfed by surrounding nations for most of recorded history. It currently ranks 64^th in the world in GDP per capita. On Russia’s southern boarder is Kazakhstan, geographically the largest country in central Asia but with a meager population density of only about 6 people per square kilometer. It was the last of the former Soviet Republics to declare independence, and it has the same president today as it did in 1991. The Kazakhstani economy is one of the strongest in the region, with over 5 percent growth in each of the past five years.
Russia, Belarus, and Kazakhstan became the founding members of the Eurasian Economic Union (EAEU) on January 1 of this year, joined a day later by the Republic of Armenia. The organization aims to foster economic integration in the largely underdeveloped region that comprises the former Soviet Union. Its stated goal is to increase the competitiveness of member economies through greater cooperation and to raise the standards of living of the countries’ citizens. The EAEU’s treaty allows for free movement of people, goods, and capital between the four nations.
According to several indicators, the EAEU could prove a formidable force in the world economy in coming years. Despite only having four members, it has a collective GDP of $2.2 trillion, which would place the group at 8^th in the world if it were a single country, and its 182 million residents constitute a large potential workforce. Already dominant in the energy sector, EAEU member countries pump out 608 million tons of oil each year, more than any single country in the world.
However, there are several red flags as well. For example, the EAEU’s website boasts an unemployment rate of 5.3 percent—lower than that of the United States, the EU, and the UN. However, barely half of the population is economically active. The low level of unemployment masks the shockingly low labor force participation rate—primarily the result of discouraged workers. With such a small percentage of residents participating in the workforce, perhaps the EAEU isn’t as economically robust as some statistics may suggest. Furthermore, with the Russian economy suffering from sanctions over Ukraine and low oil prices, the union’s biggest player finds itself in a precarious position.
So given these mixed indicators, what convinced Belarus, Kazakhstan, and Armenia to join the EAEU, and what might convince them to leave?
Belarus
Belarus has had experience with attempts at post-Soviet integration in the past. In 1999, it created a Union State with Russia and planned to introduce a common currency in 2004. This plan never came to fruition, however, largely because of the macroeconomic asymmetry between the two countries. More recently, it joined the Eurasian Customs Union and Single Economic Space, but the members of these bodies continue to engage in trade wars despite cooperation agreements. Belarus will have to hope that the aspirations of the EAEU materialize better than those of past international unions.
As a member of the EAEU, Belarus stands to gain substantially from regular access to the Russian consumers. A common oil market would help Belarusian vendors extract maximum revenues, as they would no longer have to pay high tariffs on sales to Russia. According to current provisions, a common oil market won’t emerge until 2025, but Belarus will receive a concession in the meantime: $1.5 billion in relief of duties that the country normally has to pay Russia for the export of oil. This figure will be renegotiated on an annual basis, however, raising uncertainty as to whether the terms of the agreement will become more or less favorable over time.
Belarus also hopes that membership in the EAEU will help stabilize its economy overall. Currently, Belarus is teetering on the brink of recession. In 2011, when its economy crashed, Belarus received a bailout loan from the Eurasian Economic Community, one of the predecessors to the EAEU. Many in Minsk hope that this time around the new economic union will also give it a helping hand if necessary.
Yet there are several signs that Belarus’ relationship with the EAEU will be far from seamless. Just a month before the organization’s founding, the Kremlin accused its neighbor of re-exporting European goods to Russia despite the country’s self-imposed ban. This triggered an embargo of the goods of 23 Belarusian companies and the repositioning of customs officials at the countries’ mutual border. Events like this leave serious questions as to whether or not the EAEU will be able to survive the mistrust between its member countries. For Belarus, the relationship with Russia is especially crucial, since Kazakhstan and Armenia collectively account for less than 2 percent of the country’s trade turnover, while Russia constitutes nearly half.
For this reason, Belarus also has an ailing Russian economy to fear. Because of mutually imposed trade sanctions with the West and low oil prices, Russia finds itself in the midst of what could be a protracted recession. Since so much of Belarus’ trade occurs with Russia, its own economic health leans heavily on that of its eastern neighbor. This dependent relationship is only reinforced by the existence of the EAEU. Russia’s economic perils and its tensions with the United States and the EU could thus be reasons for Belarus to reassess the value of membership in the Eurasian union.
Kazakhstan
Kazakhstan, as a member of the EAEU, looks forward primarily to continued free access to members markets. Its economy is based largely on the export of natural resources, including various forms of petroleum as well as minerals such as copper, so it will likely take advantage of the free trade zone. Exchange with Russia is especially promising, since 12 of its economic regions share borders with Kazakhstan.
A Eurasian economic union will also likely help the country lower its high transportation costs. The organization plans to establish trade routes linking European and Asian economies through Kazakhstan. In addition, Kazakhstan will enjoy equal access to Russian and Belarusian railways. Of course, the existence of a free trade zone lowers the cost of moving goods to other member states as well.
But despite the potential upside, there has long been significant opposition to Eurasian integration within Kazakhstan. From the get-go, Kazakhstani leadership has wanted to ensure that the EAEU remains solely economic in nature. In 2012, those worried that common Eurasian institutions could threaten Kazakhstani sovereignty proposed a referendum on its membership in one of the EAEU’s precursors—the Eurasian Customs Union. In early 2014, when the crafting of the EAEU was well underway, a formal opposition movement sprung up. In particular, anti-Eurasian sentiment has gained traction among the country’s Kazakh ethnic group, who make up a slight majority of the population and are particularly well represented among the educated upper class. Russia’s war with Ukraine and the resulting sanctions from the West have only reinforced skeptics’ position that increased association with Moscow is an unjustified risk.
Responding to these concerns, the Kazakhtani government pushed for the inclusion of a clause in the union’s basic principles that requires the member states to respect each other’s political systems. It also supported provisions that would prevent Russian dominance: giving each member an equal vote in determining policy and each state veto power.
Still, there is no telling whether Kazakhstan will remain in the EAEU long-term. Its participation is only guaranteed under longtime President Nursultan Nazarbayev, who has a strong bias toward the EAEU and integration of the former Soviet space in general. However, politics in Kazakhstan is highly personalized, with the president often gaining authoritarian power through the distribution of patronage. Since the aging Nazarbayev has neglected to personally groom a successor to continue his legacy, it’s very possible that the next president won’t share his pro-integration sentiment. The uncertainty that’s sure to follow his leaving the seat of power will also therefore spell uncertainty regarding the country’s position in the EAEU.
Armenia
The decision to join the EAEU required sacrifice for Armenia. When it chose to enter the Russian-led bloc, it was forced to give up its Association Agreement with the EU. In the end, Armenia opted for the familiarity of trade with the other former Soviet Republics instead of adopting the EU’s higher standards of membership and obeying its investment requirements.
Yet, membership in the EAEU comes with plenty of obstacles of its own. For one, the historically open Armenian economy will now have to conform to the high-tariff protectionist policies of its fellow union members. This will obviously raise prices but might also damage Armenia’s standing within the World Trade Organization, as several WTO states took issue with its accession into the EAEU.
Furthermore, membership within the Eurasian union doesn’t seem to make much sense geographically. Armenia doesn’t have any land connections or functioning railroad passages to the other current EAEU states. Thus, assuming exchange within the bloc constitutes an increasingly large portion of the country’s trade, it will probably incur high costs of transportation.
Indeed, many Armenians have realized that the EAEU may not be as promising as they had initially thought. Since joining the Eurasian group, Armenian officials have returned to engaging with Brussels, identifying areas for potential cooperation with the EU and signaling that their experience in the Russian version has been disappointing at best. While it’s too early to say that Armenia is preparing to leave the bloc, it’s clear that it’s at least hedging its risk.
While the EAEU remains intact for now—poised to add two new members, Tajikistan and Kyrgyzstan, in the near future—its long-term viability is far from certain. Attempts at post-Soviet integration have failed consistently in the past, and it remains to be seen whether or not the EAEU will be able to successfully coordinate the economies of its members, the majority of which are rife with unemployment and underdevelopment. While the EAEU presents them with clear opportunities, each country’s leadership has serious reservations about its membership. It would be unsurprising, therefore, if the potential economic and political consequences faced by Belarus, Kazakhstan, and Armenia were enough to trigger an eventual disbanding of the bloc before it fully developed into a strong economic partnership.
Image source: Wikimedia // Eurasian Economic Union