3. Deal Making
Member states take part in the Eurasian project for various reasons. Yet, the evidence contradicts the view that member states, including Russia, are primarily committed to deeper economic integration. However, all member states have strong reasons to engage in the EAEU, which has enabled the organization to expand rapidly. This seeming contradiction is explained by deals struck between the primary driver of the EAEU, Russia, and other participating states.
Russia
Officially, Kazakhstan’s President Nazarbayev is credited with being the ‘godfather’ of the Eurasian project as he first floated the idea of such a union in 1994. However, in reality, it is a project driven by Russia with the aim of engaging with post-Soviet states.
The key benefit for Russia is the construction of a regional bloc to overcome what the country sees as the loss of power and control in the region after the collapse of the Soviet Union. Further Eurasian integration is one of Russia’s key strategies to re-build its status on the international stage.8
Putin has sought to counteract economic marginalization and re-establish Russia at the heart of an economic bloc in the belief that ‘great powers do not dissolve in some other integration projects but forge their own’.9 The EAEU demonstrates Russia’s recognition that the world is increasingly split into regional blocs that pool economic might to consolidate power and influence. The Kremlin became concerned about Russia’s economic marginalization in response to China’s growing strength and an ever enlarging EU. Investing in its own regional bloc as a tool to augment Russia’s standing in the global order became a policy priority.10
Since the late 2000s Eurasian integration has been, at least in part, a defensive response by the Russian leadership to the perceived encroachment on Russia’s sphere of influence by the EU and, increasingly, China’s regional ambitions. The colour revolutions during Putin’s first term as president only strengthened his resolve to address perceived threats to Russia’s traditional powerbase in his second term.
An advantage of the EAEU structure is that it allows Russia to influence the foreign policy choices of member states without the onerous responsibility of governing them. This is a form of ‘soft’ hegemony rather than empire-building in the sense that Russia does not wish to control domestic institutions and policies but wants to align their foreign policies with its own interests. This system amplifies Moscow’s global reach and enables it to act like a regional ‘gatekeeper’ for Eurasia.
Nevertheless, the Kremlin’s strategy does not eliminate the essential conundrum of Russia’s regional leadership: its massive military superiority and the sheer extent of its economic resources. Even in the 1990s, when Russia was particularly weak, it was vastly more powerful than any other post-Soviet state and thus able to achieve its strategic regional goals with little interference. For nearly two decades after the collapse of the USSR, Russia simply relied on ‘hegemonic bilateralism’ in relations with its post-Soviet neighbours.11
Such behaviour is not unique. In fact, it can be widely observed in international relations that powerful states tend to prefer weak institutional arrangements that allow them to avoid potentially costly commitments and binding constraints. They favour more power-based – rather than rules-based – interactions with their neighbours. And yet, when it comes to regional integration, the cooperation of other states and their willingness to opt into a regional organization led by the dominant state is vital. Simply speaking, to create a regional bloc, the dominant state needs willing supporters.
However, for smaller states the rationale for opting into a bloc dominated by a powerful state is hardly compelling. With Russia accounting for 84 per cent of the GDP of the EAEU, the danger for weaker states is that Moscow’s interests will take precedence over their own. Thus, to placate those fears a dominant state needs to take into account the point of view of the smaller states and curtail its own preferences. Re-assurances and safeguards offered by Russia to members are evident in the economic focus and institutional design of the EAEU.
Russia’s main benefits from the EAEU are political rather than economic. The EAEU accounts for only 5 per cent of Russia’s trade – the bulk of the country’s exports go to the rest of the world. Russia’s original plan for integration was essentially political rather than merely economic. At the outset of the EAEU, the Kremlin aimed to establish a comprehensive union, encompassing monetary union and political and defence integration.12 However, this far-reaching agenda was rejected by other states, particularly Kazakhstan, which succeeded in its efforts to limit the EAEU to economic integration.13 This demonstrates the paradox of Russia’s efforts to increase its influence in the region: the EAEU is nominally about economic cooperation, yet economic relations with Eurasian members only matter for Russia as a precursor to achieving its political and geopolitical aims.14 In economic terms alone, deep integration with other member states is of limited importance for Russia’s trade and economic development.15 This has a definite impact on how Russia approaches Eurasian integration as an economic project.
Members
In purely economic terms, membership of the EAEU has limited appeal.16 Therefore, to entice potential member states, Russia has offered a degree of formal power-sharing within the union, while also striking a series of individual deals with members. In specific terms, these bargains exploit member states’ existing dependencies on Russia for energy, labour migration, finance and security. Some elements of the bargains fall within the legal scope of Eurasian integration (for example, free trade without exemptions), all too often, however, they go beyond the explicit parameters of the union, such as using energy prices or security as negotiation points. In all cases it is Russia that has final say on these informal deals.
For Belarus, trade with Russia and the rest of the world are comparable in terms of volume but trade with other EAEU member states remains negligible. The Russian market is of particular importance for some sectors of the Belarussian economy, accounting for 35 per cent of total food produce exports in 2015 and 22 per cent of machinery and transport equipment exports over the same period. The promise of improved access to the Russian market is an important element of the Eurasian project’s appeal.17 But it is Belarus’s dependence on Russia as the main source of imports, particularly hydrocarbons, which is the determining factor. Securing favourable terms for energy imports has underpinned Belarus’s willingness to re-integrate with Russia over the last two decades, starting with the Union State, an organization uniting Belarus and Russia in the late 1990s. To this end, President Lukashenka has accommodated Russian preferences, ceding elements of Belarus’s sovereignty in the process, arguing that ‘sovereignty is not an icon one needs to pray before’.18 Yet, he has been tough in bargaining with Russia on energy, making Belarus’s participation in the project explicitly dependent on favourable terms in energy deals with Russia. This was the case at the launch of the Customs Union in June 2010, in the run-up to the signing of the EAEU treaty in May 2014 and then again in late 2016. As inter-state energy contracts are negotiated annually, there are frequent opportunities for both sides to bargain. On these occasions, Minsk insists on more stable terms of energy supply and access to energy at prices available to Russia’s domestic consumers. To achieve this, Belarus has often threatened to leave the EAEU whenever it encounters Russian resistance. However, with the worsening economic situation, a lack of alternative access to finance and growing public dissatisfaction, Lukashenka has no choice but to rely on Moscow’s economic support.
For Armenia, the country’s security and economic dependence on Russia all but guaranteed it would join the EAEU. In the most striking illustration of bargaining strength, Russia forced Armenia to reverse its initial decision to stay outside the EAEU.19 After a private meeting with Putin, President Sargsyan suddenly announced his country’s intention to start accession to the Customs Union and participate in the formation of the EAEU on 3 September 2013. This was in lieu of signing the Association Agreement with the EU, the negotiations of which had been completed only a few weeks earlier and which Sargsyan intended to sign in Vilnius in November 2013. This U-turn was rationalized on the grounds that ‘participating in one military security structure [the Collective Security Treaty Organization] makes it unfeasible and inefficient to stay away from the relevant geo-economic area’.20 Some economic carrots, such as reduced energy prices, a financial loan and various discounts, were also thrown in as enticements.21 But it was Russia’s strategic use of Armenia’s security vulnerability in regard to Azerbaijan, as a result of the Nagorny Karabakh region conflict (during which Russia actually sold arms to Azerbaijan), which forced Yerevan’s hand. The centralized decision-making process in Armenia made this volte-face easy to accomplish. The momentous decision to join the EAEU was taken single-handedly by the president without any domestic deliberations and took the Armenian elites, society and the EU by surprise. Domestic actors were hardly enthusiastic about membership, realizing that during the accession negotiation, Armenia was unable to defend its economic interests in relation to Russia.22 However, in simple terms, the cost of ‘disloyalty’ to Russia and eschewing joining the EAEU was too great for Armenia.23
For Kyrgyzstan, participation in the EAEU was arguably more pressing than for other members owing to its extensive trade with Kazakhstan and Russia: trade within the EAEU accounted for about 42 per cent of Kyrgyzstan’s total trade in 2015, including 16 per cent with Kazakhstan and 26 per cent with Russia. Nevertheless, free trade was not the key motivating factor in its accession decision. Instead, the crucial remittances from labour migration and Russian financial assistance ($1.2 billion) were the determining factors. Kyrgyzstan has one of the highest rates of reliance on labour migration in the world, the membership of the EAEU created more favourable conditions for migrants from Kyrgyzstan than from non-members, such as Uzbekistan and Tajikistan.24 The political survival of the ruling elites was also dependent on relations with Russia, their vulnerability having been heightened by the 2010 coup and political and ethnic instability in the country. Domestically, Kyrgyzstan was not really ready to assume membership obligations of joining the bloc nor was it expected to make a significant economic contribution to the EAEU – the country accounted for 0.4 per cent of the EAEU’s GDP and 0.8 per cent of its trade volume in 2015. Despite its formal membership, the country does not have full access to the common market.25 The participation of Kyrgyzstan has created problems within the union.26 Yet, at the time of its accession, such was the symbolic importance of attracting a new member, particularly after Ukraine’s steadfast refusal to join, that Russia forged ahead, despite its detrimental effect on the union as a whole.
Finally, Kazakhstan’s stake in a successful regional integration project is second only to Russia’s. This meant that there was no grand bargain as such. The EAEU is seen by Astana as a way to contain Russia within a rules-based organization, in a similar way that the US was required to work within the constraints of the North American Free Trade Agreement (NAFTA). Clearly, however, Kazakhstan is keener on free trade and economic cooperation – best embodied in the SES project of 2012 – rather than a deep, open-ended union.27 Trade with the rest of the world, especially with the EU and China, remains important to Astana: in 2015, Kazakhstan exported 53 per cent of its goods to the EU, 12 per cent to China and 10 per cent to Russia. To protect its overall trade Kazakhstan has ensured that integration is restricted to economic issues rather than an all-encompassing political union. However, the doubts of the benefits of the EAEU membership have deepened in the wake of the ongoing economic crises in Russia and Kazakhstan itself.
Overall individual grand bargains have been relatively easy and quick to strike, owing to the nature of the political regimes in the participating states: all of which are non-democratic with considerable powers concentrated in presidents’ hands.28 This greatly simplifies negotiations and decision-making, as it often only depends on the will of the president in office. All of them have used the Eurasian project to secure their own political survival (or to ensure a smooth political succession, in the case of Kazakhstan).
Attracting supporters through grand bargaining has lasting consequences for the common endeavour of creating an equal union. As a result, the EAEU has emerged as a classic ‘hub and spoke’ model with Russia at its centre.29 Membership of the EAEU has been secured as a result of Russia’s show of strength and the inherent weakness of unreformed post-Soviet economies with their dependent relationship with Russia. Kazakhstan is only a partial exception to this with its GDP per capita higher than Russia’s in 2016 but it is burdened by a lack of diversity in its economy, which is heavily dependent on energy exports. Except for the case of Kyrgyzstan, there is little evidence to suggest that integrating with Russia is an attractive path towards modernization.
Nevertheless, despite lingering and indeed growing scepticism, member states’ leaders rarely question the grand narrative as they are not in a position to resist Russian demands. The countries that are most doubtful of the benefits of integration – such as Armenia and Kazakhstan – take the pragmatic position that EAEU membership is unavoidable and reflects the balance of power in the region.
The Ukraine effect
At the outset, Ukraine’s participation in the EAEU was seen by Russia as being indispensable if Russia were to achieve its global ambitions. Russia’s concerted campaign to attract Ukraine during Yanukovych’s presidency (2010–14) was premised on dissuading Ukraine from concluding an Association Agreement with the EU. With Ukraine sliding into recession in late 2013, Yanukovych was enticed by a much needed financial package and low energy prices from Russia and, as a result, failed to sign an Association Agreement with the EU. This U-turn triggered mass protests that evolved into an anti-regime revolt, which resulted in the eventual demise of the Yanukovych regime and his fleeing to Russia.30
As Ukraine’s new government spurned Russian overtures and proceeded to foster closer ties with the EU, Russia unleashed retaliatory punitive measures, including the annexation of Crimea, a limited war in the Donbass and various economic sanctions.
The failure of Russia to secure Ukraine’s membership of the EAEU was a blow to Moscow’s ambitions for the organization. It was also a disaster for the organization itself as this setback intensified Russia’s hegemonic inclinations, something that in turn heightened the sensitivities of other members in regard to their own sovereignty. Member states are obviously keen to retain their distance from Russia’s geopolitical confrontation with the West.
Russia’s annexation of Crimea was not publically challenged by EAEU member states but by the same token the Russian explanation was not compliantly accepted; Moscow’s narrative on its duty to protect ethnic Russians unsettled countries with large Russian minorities, such as Kazakhstan. As President Nazarbayev stated after the annexation, ‘as far as our independence is concerned, it is a constant. Kazakhstan will not surrender to anybody even an iota of its independence’.31 Following Putin’s dismissive comment that there was no Kazakh statehood before Nazarbayev created it (echoing his similar remarks on Ukraine prior to the annexation), President Nazarbayev asserted the revocability of its commitment to the EAEU: ‘if the rules which were previously established in the Treaty are not respected, then Kazakhstan has the complete right to end its membership in the Eurasian Economic Union. Astana will never participate in an organisation which represents a threat to the independence of Kazakhstan’.32 Russia’s actions in Ukraine cast a long shadow over the negotiation of the Astana Treaty, exposing latent tensions and prompting member states to think twice about delegating extensive powers to institutions dominated by an openly militant Russia.33
An economic down-turn, resulting from a drop in energy prices and the international sanctions imposed on Russia by the West, resulted in a 3 per cent fall in Russia’s GDP in 2015. This in turn undermined Russia’s role as the ‘economic engine’ in the region. The Russian recession and devaluation of the rouble has had a profound effect on trade with EAEU partners. The country’s total trade with EAEU partners fell by about $15 billion year-on-year in 2015 and declined further in 2016.34 The impact of Russia’s economic slowdown was made worse by the protectionist measures imposed by Moscow, ranging from trade bans to import substitution programmes. These actions have severely dented EAEU unity.
As a consequence, the benefits of EAEU membership have been eroding since 2015. For example, being heavily dependent on labour migration, Kyrgyzstan was badly affected by the decreasing remittances of labour migrants in Russia, even though access for Kyrgyz workers improved greatly (in contrast with Tajik migrants). Furthermore, the depreciation of the rouble sparked concerns over the flooding of Russian cheap goods into markets of other member states, especially Kazakhstan, where domestic goods became uncompetitive in relation to depreciated Russian goods. This clearly demonstrated that Russia’s own economic troubles inflicted tangible economic costs on other member states. For Belarus, Armenia, Kazakhstan and Kyrgyzstan the costs of participating in the union began to outweigh the benefits.
At the same time, however, Russia’s covert and overt actions in Ukraine vividly demonstrated the economic, political and military costs of disobeying Russia.
Inevitably, since 2014, Russia’s attention has been diverted from the internal, technocratic aspects of the EAEU towards geopolitical and security issues, with a premium put on its global agenda and freedom to pursue trade policies in support of it. Russia has become increasingly selective about the extent to which it is prepared to be bound by the common EAEU rules and has disregarded the costs its unilateral actions have had on other member states and the EAEU as a whole. Russia signalled that it is prepared to undermine the very organization through which it sought to reassert its regional power. As a result, the events in Ukraine have profoundly altered the design and function of the EAEU.
8 On Russia’s efforts to re-build its power, see Lo, B. (2015), Russia and the New World Disorder, London and Washington, D.C.: Chatham House and Brookings Institution Press.
9 Bordachev, V. and Skriba, A. S. (2014), ‘Russia’s Eurasian Integration Policies’, in The Geopolitics of Eurasian Economic Integration, IDEAS (London School of Economics), London, available at: http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR019/SR019-Bordachev-Skriba.pdf (accessed 10 Jan. 2016).
10 This policy priority was accompanied by rekindled Eurasianist ideological thinking. However, the latter was more of a consequence rather than the primary reason for the Kremlin’s investment in the Eurasian structures, see Cooper, J. (2013b), ‘Russia and the Eurasian Customs Union’, in Dragneva, R. and Wolczuk, K. (eds) (2013), Eurasian Economic Integration: Law, Policy and Politics, Cheltenham: Edward Elgar, pp. 81–99.
11 Cooper, J. (2009), ‘Russia’s Trade Relations with the Commonwealth of Independent States’, in Rowe, E. W. and Torjesen, S. (eds), The Multilateral Dimension in Russian Foreign Policy, Abingdon: Routledge.
12 Cooper, J. (2013b), ‘Russia and the Eurasian Customs Union’.
13 Article 1 (2) of the Astana Treaty. The drafting history of the Astana Treaty shows how strong Kazakhstan’s position was in this respect, Dragneva, R. (2016), ‘The Eurasian Economic Union: Between Sovereignty and Integration’, Birmingham IEL Working Papers 2016-10, http://www.birmingham.ac.uk/research/activity/iel/publications/working-….
14 The long-standing reliance on economic means to achieve political aims in Russia’s relations with Ukraine is analysed in Dragneva, R. and Wolczuk, K. (2016), ‘Between Dependence and Integration: Ukraine’s Relations with Russia’, Europe-Asia Studies, 68:04, pp. 677–698, doi: 10.1080/09668136.2016.1173200 [open access article].
15 For example, the elimination of non-tariff barriers within the EAEU would raise the value of Russia’s GDP by 0.2 per cent. Eliminating non-tariff barriers within the EAEU is more important for the Belarusian and Kazakh economies. See Vinokurov, E. (2016), ‘Evroazii’skii Ekonomicheskii Soyuz bez e’motsii’[Eurasian Economic Union without emotions], Voprosy Ekonomiky (12): 43–60.
16 The key economic trade partner is Russia whereas trade with other EAEU states is either very limited or simply non-existent (the only exception is Kyrgyzstan, which trades more extensively not only with Russia but also with Kazakhstan). While economic relations with Russia are important to all smaller partners, entering a formal bloc that is tailored to the needs of the Russian economy (e.g. external trade tariffs) has limited appeal.
17 Frear, M. (2013), ‘Belarus: player and pawn in the integration game’, in Dragneva, R. and Wolczuk, K. (eds), Eurasian Economic Integration: Law, Policy and Politics, Edward Elgar, Cheltenham.
18 Falyakhov, R. (2013), ‘Suverenitet ne ikona’ [Sovereignty is not an icon], Gazeta.Ru, 24 October 2013, http://www.gazeta.ru/business/2013/10/24/5722545.shtml.
19 On the initial choice, see for example, Chernenko, E. (2012), ‘“Tamozhenniy soyuz ne imeet dlya nas zmysla.” Premier Armenii o vzaimootnosheniyakh s RF’ [“A customs union does not make sense for us”. Armenia’s Prime Minister on relations with the RF] Kommersant, 4 April 2012, http://kommersant.ru/doc/1908052. This course was also in evidence in April 2013, when Armenia signed a Memorandum of Understanding on Cooperation with the Eurasian Economic Commission, which envisaged general cooperation without any indication of Armenia’s intention to join the Customs Union.
20 President of the Republic of Armenia, ‘The Presidents of Armenia and Russia Summarized the Results of the Negotiations’, Press release, 3 September 2013, http://www.president.am/en/press-release/item/2013/09/03/President-Serz…
21 Minasyan, S. (2015), ‘Armenia Keeps on Balancing: Between the European Union and the Eurasian Economic Union’, Ponars Eurasia Policy Memo, No 377, August.
22 Authors’ interviews with EU officials and Armenian experts in Yerevan in February 2014. See also, for example, Aysor (2014), ‘Haykakan Zhamanak: Negotiations on customs duties not successful’, 18 April 2014, http://www.aysor.am/en/news/2014/04/18/maqsayin-miutyun/ (accessed 10 Jan. 2017).
23 Delcour, L. and Wolczuk, K. (2016), ‘Perception of the EU in the South Caucasus’, CASCADE working paper.
24 See Crisis Group (2016), The Eurasian Economic Union: Power, Politics and Trade, Crisis Group Europe and Central Asia Report No. 240, 20 July.
25 Putz, C. (2016), ‘Kyrgyzstan Gripes about EEU Access’, The Diplomat, 18 November 2016, http://thediplomat.com/2016/11/kyrgyzstan-gripes-about-eeu-access/.
26 It is reported, for example, that the volume of drug trafficking from Afghanistan to the EAEU increased by 20 per cent after Kyrgyzstan’s accession, Da Vinci AG Analytical Group (2016), ‘Evraziiskii ekonomicheskii soiuz. Chto proizhodit za kulisami proekta Putina’ [The Eurasian economic union. What happens behind the scenes of Putin’s project], 2 March 2016, http://glavcom.ua/publications/331464-evrazijskij-ekonomicheskij-sojuz… (accessed 20 Nov. 2016).
27 Kassenova, N. (2013), ‘Kazakhstan and Eurasian economic integration: quick start, mixed results and uncertain future’, in Dragneva, R. and Wolczuk, K. (eds) (2013), Eurasian Economic Integration: Law, Policy and Politics, Edward Elgar, Cheltenham.
28 However, Armenia is currently in a transition from being a presidential system to a parliamentary republic as a result of the deal between the Armenian government and the opposition forces on reforming the electoral system in 2016.
29 In 2015, almost 97 per cent of the value of trade within the EAEU consisted of bilateral trade with Russia. See Strzelecki, J. (2016), ‘The Eurasian Economic Union: a time of crisis’. OSW Commentary, No. 195 (January). See the analysis of trade flows within this hub-and-spoke model see Movchan, V. (2017, forthcoming), ‘The Eurasian Economic Union: diverging trends in common trade policy’, Kyiv, Institute for Economic Research and Policy Consulting, Kyiv.
30 For an in-depth analysis of Russia’s strategy to attract Ukraine see Dragneva, R. and Wolczuk, K. (2015), Ukraine between the EU and Russia: The Integration Challenge. Houndmills, Basingstoke and New York: Palgrave Macmillan.
31 Zakon.kz (2014), ‘N. Nazarbaev: Kazakhstan ne otdast ni iotu nezavisimosti komu by to ni bylo’ [N. Nazarbayev: Kazakhstan will not cede an iota of independence to anyone], 25 March 2014, http://www.zakon.kz/4611637-n.nazarbaev-kazakhstan-ne-otdast-ni.html.
32 Newsru.com (2014), ‘Nazarbaev zaiavil o vozmozhnom vykhode Kazakhstana iz Evraziiskogo soiuza’ [Nazarbayev announced Kazakhstan’s possible withdrawal from the Eurasian Union], 31 August 2014, http://newsru.com/world/31aug2014/nazarbaev.html (accessed 14 Apr. 2015).
33 Dragneva, R. (2016), ‘The Eurasian Economic Union: Between Sovereignty and Integration’.
34 Movchan (2017, forthcoming), ‘The Eurasian Economic Union: diverging trends in common trade policy’.