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Four Socio-Political Factors That Could Make or Break the Deal for Eurasian Economic Integration after Kyrgyzstan’s Accession

_ Maria Chepurina, Belek Ibraev. Experts at the Russian International Affairs Council. Moscow, March 30th 2016.

«Eurasianism is a sea comprised of many rivers that flow into it.
And no sea can subsist without its flows.» 
Chingiz Aitmatov. (1928-2008), renowned Soviet and Kyrgyz writer.

The EEU is a one-year old economic integration project built on the idea of increasing the economic development of the region through free movement of goods, services, human resources and capital primarily in northern Eurasia. It is clear that an external observer, periodically following political and socio-economic developments in the post-Soviet space, a complex abbreviation (EEU) that describes yet another regional economic integration project in Eurasia may see this initiative skeptically. The region has a history of numerous integration projects that have existed largely on paper. Apart from the clearly correlated economic factors (performance of national economies, capacity of participating states to review their model of economic development), four larger socio-political factors equally need to be taken into careful consideration when assessing the potential of the EEU. What are they and what direct or indirect impact do they have?

On 12 August 2015, Kyrgyzstan, along with Russia, Kazakhstan, Belarus and Armenia, became a full-fledged member of the Eurasian Economic Union (EEU), the latest economic integration project designed to create a common economic space through free movement of goods, services, human resources and capital primarily in northern Eurasia.

It is clear that for an external observer, periodically following political and socio-economic developments in the post-Soviet space, a complex abbreviation (EEU) that describes yet another regional economic integration project in Eurasia may sound neither appealing nor interesting. The region has a history of numerous integration projects that have existed largely on paper, e.g. the Eurasian Economic Community, the Customs Union and even the CIS.

What is the potential of this project? Apart from the clearly correlated economic factors (recession of the larger economies in 2015, need for a less resource-dependent economic development models, budget deficits), four larger socio-political factors equally need to be taken into careful consideration when answering these questions.

Factor One: personalities matter

Let us go twenty years back. The EEU’s background logic cannot be understood without keeping in mind that the original proposer and a long->term promoter of the concept was Kazakhstan’s President Nazarbayev. Back in 1994, Nazarbayev proposed to re-establish a common currency and lift the newly-established trade barriers in the CIS region, an emerging yet largely underdeveloped market of almost 250 million people [1]. The principal rationale was to preserve the potential of the previously established and ready-to-use economic, infrastructural and cultural links among the newly independent CIS countries.

At that time the proposal did not go much further, rejected by Russian elite. As was noted by Nazarbayev, “following my proposal, I received a significant number of positive feedback from civil society and citizens of the CIS countries. However, top ranking politicians were not ready to thoroughly discuss it at that time” [2]. Kazakhstan, neighboring both Russia, Kyrgyzstan and China, which makes it a certain heartland of the EEU, has a special position and stakes in the process.

Nursultan Nazarbayev is currently 76. Any political transition is likely to bring to power new political figure or figures that would be instinctively less integration-oriented than the current President. Although later on in time, similar trends hold true for Belarus, and to a smaller extent – Armenia and Kyrgyzstan.

Factor Two: China matters

One of the key developments of a regional character to watch out for these days is the decision to connect the EEU and China’s Silk Road Economic Belt Project (SREB). With the initial EEU membership growing territorially in 2015 after adhesion of Kyrgyzstan and Armenia, the Union’s geo-economic opportunities were extended with respect to China, the Middle East and south Asia. Put forward in 2013 by Xi Jinping, the SREB is part of a larger One Belt, One Road initiative, designed to facilitate land-based and maritime trade and transportation corridors for Chinese goods throughout Asia, Eurasia, Russia and adjacent areas towards Europe. In other words, the East meets West project.

Chinese economic and security analysts have repeatedly highlighted potential risks associated with the SREB, even if seemingly well-funded and ambitious [3]. These are primarily related to the negative diplomatic repercussions of promoting such a large scale project in a China-suspicious neighborhood, as well as possible low-returns on major infrastructural investments due to the high-risk security profiles of some of the Central Asian states [4]. From this perspective, the countries already in the EEU have a more attractive profile, due to their tighter links with Russia, providing military technical assistance to several countries in the region through the CSTO mechanisms.

In July of 2015 China and Russia signed a communique supporting the launch of a dialogue platform to coordinate the two initiatives. It remains to be seen how the platform will work in practical, concrete terms [5].

Factor Three: external stakeholders matter

Effective unified transportation regulations and abolition of custom checks on borders, foreseen by the EEU regulations, are a tool to attract external stakeholders, speeding up the transportation process and making it a “one-stop” shop for potential investors. In the World Bank’s 2014 Logistical Performance Index, Kazakhstan rates 88 out of 155 countries surveyed, Russia – 90 and Kyrgyzstan – 149 [6]. The lowest scoring indicator within the index is “customs”, defined as “efficiency of clearance process” which includes speed, simplicity and predictability of formalities. Suppression of intrastate borders within the EEU and creation of a common outside border with jointly established regulations represent a potential solution. In this sense, the upcoming 2016 report results (the survey is conducted every two years) would be telling.

Further enlargements, primarily to include Tajikistan, are another critical factor. Although politically tempting for some EEU members, the current economic, regional and, not least, domestic conjuncture in Tajikistan, with its 8 mln. population, would make any hasty decision a real challenger to the long-term stability and effectiveness of the project.

Factor Four: citizens matter

European economic integration has clearly shown that for such a project to be sustainable it needs to be attractive and accessible for the citizens.

As the case of Kyrgyzstan shows, this has not yet been the case. Having established itself over the past 20 years as a major import hub of Chinese goods, the country’s small commerce suffered a blow after the tariffs on goods outside of the EEU area were increased. Since, according to Askar Salymbekov, the owner of Kyrgyzstan’s largest market “Dordoi”, nearly 80% of imported Chinese goods to Kyrgyzstan used to be re-exported to the neighboring countries before 2015, the country’s Uzbekistan- and Kazakhstan-oriented retail sector became the principal economic victim of the accession process [7].

However, expectations are also strong, especially in agriculture. Apart from the expected opening of (primarily) Russia’s and Kazakhstan’s markets to Kyrgyz agricultural products, the newly introduced regulations should also lead to better quality products for national consumption. The deal-breaker here would be a thorough follow up on proper implementation and usage of mechanisms designed to alleviate first symptoms of such shocks and to promote innovation, such as the Russia-Kyrgyzstan development fund [8]. The recurring question among the Kyrgyz population nevertheless relates to accessibility and transparent usage of this funding for small and medium enterprises and producers.

Migration policies within the EEU is yet another factor that can make or break the deal. The facilitation of movement of workforce and migration procedures has been seen as a major incentive for signing the agreement, primarily for Kyrgyzstan. As many as 1 mln. Kyrgyz guest workers reside in Russia, Kazakhstan and other EEU countries. Although it is yet to be seen how these measures are implemented on the practical level, legally, the new-coming migrant workers from the EEU countries now benefit from a more favorable immigration regime than their Central Asian counterparts from non-EEU countries, such as Tajikistan or Uzbekistan. Nationals of the EEU are to enjoy the same economic opportunities and freedoms across the Union [9]. National social security card is to be accepted as such in all countries of the economic block, which entitles its holder to healthcare and social security benefits. Today’s key challenges are the need for better status legalization and issue of work permits, as well as lack in communication campaign to inform the foreign workers about their new rights [10].

Viable, or not?

Eurasianism is not an easy concept to define even in terms of geography. It is even more so politically and economically. The external environment, such as global and regional economic growth (or downturn) and the overall geopolitical situation, will have a direct impact on the project while being mostly outside of its control.

However, the four larger socio-political factors, touched upon in the paper, are trackable, adjustable and actable upon. It is depending on them that the tactical steps made so far towards the creation of the EEU will or will not synthesize into a longer-term strategy.

Internationally, concrete proposals for a joint EEU – China’s SREB effort. While Russia and the region would benefit from joint funding of infrastructural projects, China’s direct dividends would include better acceptance of the country’s yet another large-scale initiative in the region and strengthened intra-regional business cooperation. The linkage between the two projects remains so far largely symbolic, especially on the governmental level, where only one meeting of the joint group has so far taken place since it was launched in early August. There is a need for the EEU to develop an internal joint position and seize the momentum to recommit, together with China, absorbed by the scale of its overall project, to this joint smaller-scale effort in deed.

International positioning and actual implementation of the project as an economical integrational initiative rather than a broader geopolitical one is of no less importance. Greater facility for doing business is a measurable indicator, which can help attract much-needed investment to the entire area. Focusing on putting this in place, starting, for example, with efficient implementation of the unified customs procedures on the area’s outside borders is a viable, concrete and visible step in the right direction.

Finally, ensuring that the project benefits the area’s people, its entire population, rather than the political elites and large businesses, can bring long-term benefits. The benefits can be economic, including accessibility of EEU finding to small businesses and rural populations. They can also be social such as in the case of simplified and more inclusive migration policies. And, not least, societal, which should result in closer ties between the people of the EEU.

Notwithstanding its 20-year-long heritage, the EEU, which became operational on 1 January 2015 [11], is still a new initiative. Hopefully, the Project will not follow the path of the famous Russian saying coined by one of the longest-serving Russian Prime Ministers Victor Chernomyrdin “We wanted the best, but it turned out as always” [12].

References:

1. Выступление Президента Республики Казахстан Н.А. Назарбаева в Московском государственном университете имени М.В. Ломоносова на тему От идеи Евразийского союза – к новым перспективам евразийской интеграции // Официальный сайт Президента Республики Казахстан, 28.04.2014, URL: http://www.akorda.kz/ru/speeches/external_political_affairs/ext_speeches_and_addresses/page_216601_vystuplenie-prezidenta-respubliki-kazakhstan-n-a-nazarbaeva-v-moskovskom-gosudarstvennom-universit

2. ЕАЭС: Сегодня рождается новая геоэкономическая реальность ХХI века — Н.Назарбаев//Казинформ, 01.01.2015, URL: http://www.inform.kz/kaz/article/2733115

3. С Китаем по пути//Коммерсант, 05.11.2015 URL:http://www.kommersant.ru/doc/2845523

4. “One Belt, One Road”: China’s great leap outward//European Council on Foreign Relations, 10.05.2015, URL:http://www.ecfr.eu/publications/summary/one_belt_one_road_chinas_great_leap_outward3055

5. Russia-China Talks: Silk Road Leads to Eurasia//Carnegie Moscow Center, 15.05.2015, URL: http://carnegie.ru/2015/05/15/russia-china-talks-silk-road-leads-to-eurasia/ib8i

6. Logistics Performance Index//The World Bank, 2014, URL:http://lpi.worldbank.org/international/scorecard/radar/254/C/KAZ/2014/R/ECA/2014/I/UMC/2014#chartarea

7. Kyrgyzstan: Exporters of Chinese goods against Kremlin’s regional arrangements//China in Central Asia, 04.09.2014, URL:http://chinaincentralasia.com/2014/09/04/kyrgyzstan-exporters-of-chinese-goods-against-kremlins-regional-arrangements/

8. Kyrgyz Republic Gets Loan to Boost Economy Amid Regional Slump//International Monetary Fund, 14.05.2015, URL:http://www.imf.org/external/pubs/ft/survey/so/2015/car051415a.htm

9. Договор о Евразийском экономическом союзе//Официальный сайт ЕАЭС, URL:https://docs.eaeunion.org/ru-ru/Pages/DisplayDocument.aspx?s=bef9c798-3978-42f3-9ef2-d0fb3d53b75f&w=632c7868-4ee2-4b21-bc64-1995328e6ef3&l=540294ae-c3c9-4511-9bf8-aaf5d6e0d169&EntityID=3610

10. Вступление Кыргызской Республики в Евразийский экономический союз: влияние на процессы миграции//РОССИЙСКИЙ СОВЕТ ПО МЕЖДУНАРОДНЫМ ДЕЛАМ, 24.09.2015, URL: http://russiancouncil.ru/inner/?id_4=6610#top-content

11. Eurasian Economic Integration: Facts and Figures//Eurasian Commission, URL:http://www.eurasiancommission.org/en/Documents/broshura26_ENGL_2014.pdf

12. Translation: Хотели как лучше, а получилось как всегда.

Source: http://russiancouncil.ru/

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