The article is based on the situation analysis held by the Council on Foreign and Defense Policy (CFDP) on May 20, 2013. The authors are grateful to all those who contributed to the situation analysis, specifically Yevgeny Vinokurov, Director of the Center for Integration Studies at the Eurasian Development Bank; Andrei Grozin, Head of the Department of Kazakhstan and Central Asia at the Institute of CIS Studies; Dmitry Yefremenko, Senior Research Fellow at the Institute of Scientific Information for Social Sciences of the Russian Academy of Sciences; Kirill Koktysh, Associate Professor, Department of Political Theory at the MGIMO Institute of International Relations; Victor Mironenko, Head of the Center of Ukrainian Studies at the National Development Institute of Europe of the Russian Academy of Sciences; Alexander Pavlov, Deputy Director of the National Development Institute of the Russian Academy of Sciences; Dmitry Polyansky, Deputy Director of the 1st Department of CIS Countries at the Russian Ministry of Foreign Affairs; Viktor Spassky, Director of the Department of Integration Development at the Eurasian Economic Commission; and Kirill Tanayev, Director of the Modern Media Research Institute. The authors express special thanks to Fyodor Lukyanov, CFDP Presidium Chairman and Editor-in-Chief of Russia in Global Affairs, for his creative and caring approach to editing the original Russian copy of the article.
Eurasian integration, an ambitious project started in 2010 with the creation of the Customs Union of Belarus, Kazakhstan and Russia, is now entering a crucial stage where its participants will have to decide how deep and far it should go, and finally approve the principles on which they will be prepared to cooperate with each other and other potential members. Their inability to do so would signify to the outside world that integration processes in the post-Soviet area have failed.
The countries within this area are facing an objective challenge of where to go further and how. The initial goals of building sovereign states in the 1990s-2000s have on the whole been achieved: results differ in different countries but each of them has built its own statehood. The issue to address now is how to ensure further development and prosperity of the nations amid global interdependence and growing instability and uncertainty in the world. Pluralism that is gradually replacing the West’s domination creates opportunities but also complicates decision-making. Competition among major powers and communities for influence becomes increasingly fierce and the states that find themselves in the midst of it often have to respond to persistent “invitations,” which if rejected entail heavy costs, while if accepted reduce these states’ maneuvering possibilities.
Until the end of the 2000s, the “European choice” meant adherence to the European Union’s regulatory and legislative model with different forms of institutional dependence and was the only clearly stated offer to the former Soviet republics. None of the CIS states was promised EU membership even in a distant future, but Brussels went out of its way to make its norms and rules appealing and attractive to peripheral countries. However Russia, which was competing with the European Union for influence, offered mainly some abstract integration without any rigid institutional framework.
The creation of the Customs Union (on July 1, 2010) and the Common Economic Space (on January 1, 2012) embracing Belarus, Kazakhstan and Russia signified an attempt to lend some practical and legal value to Eurasian integration. Regardless of the motives (which are not quite identical), the elites of the three countries sought to build a common future while preserving and strengthening their own sovereignty. The first stage underlain by political motives has ended, and now the participating countries have to build capable integration institutions.
The next step would be forming a Eurasian Economic Union – an alliance of equal sovereign states seeking to create a common economic, customs, social and, eventually, possibly political space. By definition, this body can be created only voluntarily with all the participating countries understanding its economic and political benefits. If successful, this project should strengthen national sovereignty through supranational integration. All countries will have the opportunity not only to support positive internal development trends but also to act jointly in the international arena to defend the common interests of the region and make it more competitive.
The first stage of integration has resulted in the growing mutual trade and a positive effect of the common market on the national economies as well as in the creation of a common institutional and legal framework. But these achievements also create new challenges for Astana, Minsk and Moscow, requiring them to develop integration between their industries, to strengthen the institutional balance between supranational and interstate bodies and to encourage people to play a greater role in furthering four main freedoms of goods, people, services and capital.
THE ANSWER IS INSTITUTIONS
Many observers are skeptical about Eurasian integration. Two reasons are mentioned most frequently: first, the absence of common values as the main drawback of the future association; second, the lack of internal balance as Russia is way ahead of others economically, demographically and politically, which makes genuine equality questionable. Its absence raises constant suspicions among minor partners that fear to lose more independence than they are prepared to delegate.
As for the values, the European integration experience indicates that this component emerged quite late when the Community was already turning into the Union. Prior to that, and certainly at the initial stage in the 1950s-1960s, ideological issues were addressed in practical terms as to how to build cooperation in order to overcome the prejudices the European nations had been harboring against each other for centuries. True, the European integration project was launched in a much better political situation than that in the Eurasian region now. NATO, embracing all of the EC member states, had been around for almost ten years by that time. The Soviet threat was a strong consolidating factor. By 1957, the Americans and their allies in Europe (including the Italian Mafia) had broken the backbone of the West European communist movement. With the United States having effective levers of influence over the Old World, relative political harmony had set in in the Western world.
The former Soviet republics are now as far away from this as ever. Political systems are still going through their formative period. All three of the Customs Union founding states are in transition where full-fledged democratic mechanisms are not working yet. This raises doubts about the long-term sustainability of the project. In other words, won’t the adopted integration decisions be revised in the future?
No one can give guarantees, of course. There is only one way to minimize the risks, which is to create effective integration institutions that would benefit all parties involved in economic cooperation and make the costs of a possible “divorce” in the future inadmissibly heavy.
Given the specificity the post-Soviet countries that are very sensitive about the transfer of their recently regained sovereignty to the supranational level, one should bear in mind that the deepening and expansion of integration is not a goal in itself. The goal should be creating an effective mechanism that will allow countries to balance their national interests in the best possible way, while delegating powers to supranational bodies on the basis of multilevel interstate consensus.
As for the second factor, which fuels mistrust of long-term integration, there can only be an institutional solution. Institutions are called upon to balance up the rights and possibilities of all members of the community and ensure their genuine and tangible equality. Only checks and balances built into the institutional framework can guarantee the feeling of security to the present and potential participants. This explains why Russia is interested in “self-containment” more than others in order to dispel its partners’ concerns. The main principle of Eurasian economic integration is to bring relevant benefits to all parties regardless of their economic potential, and to provide equal access to the advantages of economic integration for all economic entities within the Common Economic Space.
Using integration experience accumulated in the world over the past decades means creating a system of institutions that could make this process stable over a long period of time. If this system is effective and functional, it can promptly coordinate national interests, produce package agreements between states and prevent emasculation of integration, including by way of restraining overly high rates of development set by supranational institutions.
European experience is undoubtedly important, but it is necessary to build a framework that is based on the principles of economic integration and takes into account specific regional features, which include not only the nature of political regimes and their ability or readiness to go ahead with integration plans, but also the fact that current and potential members of the community became independent relatively recently, the enormous egoism of regional elites, and the massive external resistance from East and West.
Today’s most important task is to harmoniously combine all inter-governmental and supranational elements. It would be a mistake to limit Eurasian integration to consensus-based inter-governmental cooperation because this would lead the project to a crisis and turn it into a purely formal undertaking should even the slightest changes occur in the political situation.
The European Union’s history shows that national states retained control over all crucial decisions at all times. The true mission of the supranational element is to facilitate inter-governmental agreements not only at the level of heads of state but also at the level of ministers, middle- and low-level officials, experts, interest groups, the public, etc.
Further development of integration will hinge on respect for the interests of the parties involved. Although initiated by the heads of state, the national level now becomes the main brake. The pace set by Eurasian institutions exceeds the ability of the national bureaucracy to assess how a certain move can affect a country’s sovereignty. This generates strong criticism of the Eurasian Economic Commission, especially in Minsk and Astana.
As long as interstate institutions remain underdeveloped, national interests will be coordinated on the bilateral level, and this will jeopardize integration. If relations between supranational executive bodies and interstate institutions are balanced out, member states can reach compromise on 75-80 percent of legislative initiatives. This will allow them to avoid bilateral discussions of key issues which become an ever-growing problem.
The challenge of a broader integration also manifests itself in the absence of clear procedures for admitting new members and in the lack of clarity about the terms of their participation and future roles. New admissions will inevitably affect the interests of the “old-timers,” and this will necessitate the development of a mechanism for conducting negotiations with potential members and resolving possible contradictions between the national and supranational positions within the community.PERFECTING INTEGRATION
There is the challenge of domination of the community’s common market over sectoral integration. The creation of the Common Economic Space (CES) means equal opportunities for all businesses operating within it as well as joint representation of regional economic interests in the international arena.
First, the creation of the Common Economic Space is an important condition for further competition within it, but it does not guarantee higher competitiveness of Customs Union and CES enterprises in the world markets. On the contrary, with increased domestic competition, the best developed businesses can get onetime advantages but lose motivation for improving competitiveness in the future. Differing economic capabilities of the member states require them not only to create a common space of four freedoms but also to coordinate their policies within the Common Economic Space.
Second, Eurasian integration needs regular and higher international representation, specifically at the G8 and G20 meetings, where the Eurasian troika is currently represented by Russia alone. The Russian delegation should include officials from Eurasian institutions in order to be able to coordinate efforts and work out a position that is more beneficial for integration by taking into account the opinions of all interested parties and, on the other hand, sounds more significantly at multilateral forums. Eurasian Union institutions need to be taken to the world arena more actively, and the head and members of the Eurasian Economic Commission (EEC) have to be included in all international bodies the work of which can affect the Customs Union. By so doing Russia will be able to make the voice of Belarus and Kazakhstan heard at the most authoritative international level. They and potential members should see that the project’s value is growing. It’s time to stop feeling shy about ourselves and our partners.
The second problem is the balance between the supranational and interstate levels. There is no clear division of functions between the Eurasian Economic Commission and member states when it comes to the pace, vector and content of integration. This does not allow supranational bodies to exercise their functions in full and, on the other hand, creates situations, unacceptable for normal integration, where members of the Customs Union and the Common Economic Space solve their issues on a bilateral basis bypassing the inter-governmental level of Eurasian integration.
The third problem is insufficient publicity for integration and the lack of understanding in society of how essential and important it is. Current achievements are mainly a result of political decisions made by leaders. People, including entrepreneurs, are barely informed about integration processes.
So far this has had little effect on the popularity of integration in the three Customs Union and CES countries. According to the polls conducted by the Eurasian Development Bank, 80% of respondents in Kazakhstan, 72% in Russia and 60% in Belarus have spoken positively about the creation of the Customs Union. Similar responses were received for the Common Economic Space: 76% in Kazakhstan, 70% in Russia and 62% in Belarus. And yet, alarming signals are coming from entrepreneurs, and as integration evolves, the so-called democracy deficit when people play no role in the decision-making process will take its toll. Groups seeking to slow down integration are already using people’s unawareness in their own interests.
As for potential expansion of the Customs Union (and eventually of the Common Economic Space), there is no clarity as to whether there should be a onetime package agreement or gradual integration can be possible with partial participation of new countries. Additionally, integration dialogue is often conducted bilaterally, which has a negative impact on the community’s integrity.
The creation of the Customs Union and the Common Economic Space calls for large-scale unification and harmonization of national norms with common legislation being drafted at the supranational level. In view of the need to delegate a part of sovereignty to an independent regulatory body, national governments should thoroughly assess the balance between potential benefits and costs.
The Customs Union and the Common Economic Space require a homogeneous economic environment that will allow business and people in the three states to benefit from the development of the common market with a high purchasing power. This process includes, inter alia, free movement of labor and people; a favorable climate for investment and innovation created by a stable and coordinated economic, financial, monetary and credit policy in the member states; access to government contracts; closer Eurasian financial integration achieved, in part, through free movement of capital; and conditions facilitating cooperation between enterprises, etc.
Competitiveness can be boosted by correcting laws that distort competition in the common market, including by applying common rules of competition. Transparency in the nationalized industries will also be necessary in order to protect the principles laid out in the integration treaties.
Eurasian integration should help harmonize the quality of life in the participating countries. This can be achieved by reducing structural disproportions between the states and by developing cooperation between industries in a way that is consistent with integration goals and principles.
The principle of equality is an important component. Integration benchmarks should be stated as a result of multilateral compromise between member states, with effective use of their supranational and interstate institutions. The institutional system of the Customs Union and the Common Economic Space is based on mutually advantageous functional economic cooperation, not adjustments to certain political tasks.
In the international arena, Eurasian integration proclaims “open regionalism.” The community is committed to active cooperation with the outside world in three areas: first, Customs Union and the CES are to expand gradually by incorporating new countries; second, member states have to defend common interests in relations with countries and regional groups located father away, primarily with the European Union and Asia; third, regional Eurasian integration does not rule out collective representation of its member states in other associations, including economic ones such as the World Trade Organization.THE GOAL IS EQUALITY
Eurasian integration within the Customs Union and the Common Economic Space currently combines elements of national and supranational regulation, which is in line with regional specificity and current objectives. The concept of classic division of power into legislative, executive and judicial branches can be realized only within a national state. The functional model of division of power similar to that in the European Union would not be appropriate for Eurasian integration. Disproportional economic differences in the member states limit their possibility of creating an unaffiliated center with at least some functions of an independent actor in issues of furthering integration. This is why the supplementary nature of the ECC Board’s supranational functions within the system of inter-governmental limitations is fully justified by regional peculiarities. Nevertheless, a key problem lies in the unbalanced interaction between supranational and inter-governmental levels within the current political process.
EEC structure and procedures aim to keep the supremacy of supranational regulation, while limiting its independent functions as the driving force of integration. Yet in reality there is no effective system of checks and balances in the form of national constraints at the supranational level.
The EEC Board, which plays the key role in regulatory monitoring and coordinating expert work when preparing inter-governmental meetings, seeks to wield more influence using available functions. This is not related to progress in integration as such because progress stems from the objective logic of institutional development. For example, artificial acceleration decreed by supranational bodies can produce the opposite effect and cause integration to roll back, which runs counter to the long-term interests of the EEC Board.
When the interests of member countries are coordinated solely by the Supreme Eurasian Economic Council or by deputy heads of government within the EEC Board, this creates a big risk of funneling inter-governmental interaction through bilateral contacts. This would mean losing the main potential advantage of Eurasian integration, namely multilateral interaction between member states. In real life, it is the multilateral coordination of interests, not the supranational format that makes it easier to find compromises. This is why it would be advisable to develop the middle and low levels of multilateral coordination in parallel to the structures of the Eurasian Economic Commission, and involve national officials and experts of all levels more actively.
One of the possible solutions would be creating, as part of Eurasian integration, a separate body for multilateral and multilevel inter-governmental interaction, tasked with coordinating national interests, including in the early stages of the decision-making. This body could meet at the level of foreign or other ministers. One of the possibilities is to create the institution of permanent representatives of the member states to the Council of Ministers, which would conduct preliminary multi-tier assessment of integration initiatives in order to work out compromises.
As the community’s regulatory framework expands, the Court of the Eurasian Economic Community (EurAsEC), which should become a part of the Customs Union and the Common Economic Space after 2015, can be quite instrumental in attracting broad sections of the population into the integration processes. Until then, the Court, being a non-political body, can effectively support the EEC’s economic regulation efforts without causing a disproportionate growth of influence at the supranational level.
The abovementioned obstacles – the domination of the common market over sectoral integration, imbalances between the supranational and interstate levels, the lack of public understanding of the essence and significance of integration, and the absence of institutional enlargement mechanisms – are not insurmountable. On the contrary, they are signs of development that requires balanced political decisions.
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The obstacles on the way of Eurasian integration are quite serious not only because of the institutional flaws and imbalances described above but also because of the strong egoism among the elites, including the Russian ones. The memory of the Soviet Union is still quite fresh and prompts some to trumpet the “glorious past” (which becomes less and less effective as political generations change) and others to recall the “prison of nations” (which is actively used by external opponents).
The public attitude in Russia is changing to indifference, and often antagonism, with regard to neighbors, with whom we share our history. Many Russian intellectuals and politicians prefer to fence off against ex-Soviet republics and erect visa barriers, especially for Central Asian states that are going through hard economic and political times. These calls often sound quite convincing and politically timely. But integration is the only way to make the labor market shared by Russia, Kyrgyzstan and Tajikistan civilized and rid it of criminal elements. Those who call for visa restrictions apparently fail to understand that a couple of years after they have been put in place we will have to ask Beijing for permission to do business there.
It’s hard for politicians, mass media and people to understand what real integration is and how it evolves. This is a complex and very subtle process. Integration critics want everything here and now, failing to understand (or pretending do to so) that integration is not an empire, a club of the chosen or kindergarten. Integration is an alliance for the individual benefit of all and everyone. And participating countries have to struggle for their benefits “to the last bullet”. This creates inevitable “teething problems.”
None of the integration projects in history has ever encountered so strong resistance from both East and West. In fact, its intensity denies the publicly declared thesis that the project is artificial, immaterial and even doomed. The European Union says straightforwardly that integration with the Customs Union will block the road to Europe for any country. China is more subtle but keeps “voicing concern” about the influence of Eurasian integration on the freedom of trade and investment in the CIS, which should be understood as the scale and depth of penetration into the former Soviet republics by Chinese business. In a nutshell, partners in the West and the East have assessed the potential of the emerging association quite adequately and are taking measures to reduce it or bring it to naught.
The success of Eurasian integration is not guaranteed. Its participants have to learn along the way, primarily Russia which is for the first time trying to develop equal cooperation with countries it used to give orders to in the past. This is a very important test range for Moscow to try out a 21st century policy when attempts at direct domination prove futile more and more often and produce the opposite results.
There is yet another significant argument in favor of integration. The modern world leaves no chance for countries, including such large ones as Russia, to remain truly autonomous if they want to have enhanced cooperation with long-standing trade and economic alliances. So there is no way for former Soviet states to succeed outside their region, be it East or West. Either they lose sovereignty and accept the rules invented by others or do everything themselves.