What is the myth?
Russia promotes the Eurasian Economic Union (EAEU) as a meaningful economic integration project, on a par with the EU and offering a potential vehicle for cooperation between the EAEU’s five member states and the EU. The essence of this claim is that the EAEU is a sort of Eurasian counterpart to the EU – the ‘gold standard’ of deep economic integration – but without the EU’s flaws. In order to gain recognition for this project, the EAEU (in practice, Russia) has sought closer relations with the EU. To further its claim of equivalence, Russia has touted a ‘Lisbon-to-Vladivostok’ free-trade agreement (FTA).
The myth has several aspects. One is that the EAEU is even capable of driving regional economic integration in the post-Soviet space. Another is that its supposed equivalency with the EU de facto makes engagement with the EAEU a worthwhile enterprise. The myth’s final aspect stems from the first two: that if the EU engages with the EAEU as an equal, Russia will not only pursue substantive trade liberalization through the above-mentioned transcontinental FTA, but will also become a more benevolent partner for the EU and its member states.
Who advocates or subscribes to it?
Key players in the West appear to believe that strengthening the EU’s direct relations with the EAEU and creating a free-trade zone combining the two blocs will dissipate geopolitical tensions. Such thinking has been evident in a number of approaches to dealings with Russia since 2014. Following the latter’s violation of Ukraine’s territorial integrity in that year, the deterioration in EU–Russia relations presented a conundrum for EU policymakers in terms of whether – or how best – to engage with Moscow. Many EU leaders and experts seem to have seen economic cooperation as a means of ‘squaring the circle’, a pragmatic route to reducing tensions despite the fact that it was Russian aggression towards Ukraine that triggered the tensions.
In 2015, the European External Action Service prepared a paper that suggested a dialogue with the EAEU as part of a package to secure Russia’s commitment to implementation of the Minsk agreements on ending the fighting in eastern Ukraine. Support for economic cooperation has subsequently been encouraged by concerns in some quarters that insufficient engagement with Russia could open the door to greater Chinese influence in the region. In September 2019, Markus Ederer, the EU’s ambassador to Russia, was reported as calling for a sweeping expansion of engagement and ‘enhanced coordination’ with Russia and the EAEU as a means of combating ‘Eurasian competition’ from China.
Germany has been particularly active in advocating economic linkages. Since 2014 the German chancellor, Angela Merkel, has favoured ‘talks between the EAEU and the EU on trade issues’ potentially leading to an inter-bloc FTA, giving credence to the idea of a common economic space. Also in Germany, an initiative led by the German–Russian business community, including companies such as Germany’s Siemens and Russia’s Severstal, has lobbied for talks between the EU and the EAEU on an eventual FTA. France has also offered encouragement: in 2019 President Emmanuel Macron, a new champion of normalizing relations with Moscow, discussed the inter-bloc trade agenda during a meeting with President Vladimir Putin. In addition to top-level political support for trade integration, similar ideas are advocated by experts and scholars as a way out of the crisis in EU–Russia relations and the increasingly intractable security dilemma.
Why is it wrong?
A ‘Lisbon-to-Vladivostok’ FTA is unlikely to address the real problems between Russia and Europe, which are that Russian objectives in the post-Soviet space are simply incompatible with those of the West (see Myth 2: ‘Russia and the West want the same thing’). Indeed, by pursuing closer economic relations, Germany and France appear oblivious to the nature of the EAEU and misunderstand Moscow’s intentions. In 2011–15, Russia proposed an ‘integration of integrations’, in effect a process of combining the two unions into a free-trade area. Yet as of 2021, it is clear that Russia’s true aims are merely to entice the EU to lift economic sanctions.
Moscow’s rhetoric is also at odds with reality: the EAEU is not a Eurasian version of the EU, and Russia’s ‘equivalency’ argument is flawed. Unlike the EU, the EAEU is not governed by strong common institutions capable of devising and enforcing a corpus of common rules. Russia also fails to uphold regional trade liberalization within the EAEU. In other words, the EAEU is not an authentic project in economic integration, and the idea that there can be free trade from ‘Lisbon to Vladivostok’ is illusory.
The EAEU is not a Eurasian version of the EU, and Russia’s ‘equivalency’ argument is flawed. Unlike the EU, the EAEU is not governed by strong common institutions capable of devising and enforcing a corpus of common rules.
At the root of the problem is the fact that, from the outset, Moscow created the EAEU as a vehicle to reverse Russia’s loss of power in the region following the demise of the Soviet Union, rather than to pursue deep economic integration with smaller states (which matter little for Russia’s economic development). Even though the EAEU is billed as a common market and presented as a rules-based body, throughout the bloc’s existence Russia has resorted to power-based interactions with other member states. As Russia seeks to promote the EAEU, it is essential for Western policymakers to recognize that its main benefits for Russia are political. The EAEU is a vehicle for Russia to influence the foreign policy choices of other states. It provides a form of ‘soft’ hegemony through which Russia, while not controlling the domestic institutions and policies of other member states, can still ensure that their foreign policies are aligned with its own interests. This enables Russia to act as a strategic ‘gatekeeper’ to Eurasia.
The two sections below explore in more detail how the project’s design and functioning, and Russia’s politicization of trade policy, fundamentally undermine the EAEU’s credibility as a multilateral organization:
The EAEU’s design and functioning
The creation of any common market is premised on strong supranational and domestic institutions: ‘institutions stronger than those of any of its member states’, according to the European Bank for Reconstruction and Development (EBRD). A high level of cooperation and commitment by the member states is also required. Superficially, the EAEU is endowed with such institutions, and its members have ostensibly committed to a series of obligations (the nature of which varies greatly across different areas of integration). In reality, no meaningful institutions and commitments are found either in the EAEU as a whole or its member states. One illustration of this is the lack of formally binding provisions in EAEU agreements and commitments, which means that integration extends only to the least contentious, ‘easy’ policy areas (such as free movement of labour). Furthermore, integration is contingent on deals struck between the member states, each of which has sought room for manoeuvre in the more contentious areas (such as the creation of an EAEU-wide energy market).
Even when common rules are adopted, compliance is patchy. This explains why, when trade conflicts break out, they tend to be resolved through bilateral negotiations rather than within the forum provided by the EAEU itself. The Eurasian Economic Commission (EEC), the common permanent body of the EAEU, does not drive the agenda and is easily marginalized by member states, especially Russia.
Data on intra-EAEU trade confirm that, with the exception of the more established relationship between Russia and Belarus, meaningful economic integration is yet to be achieved. Indeed, trade within the EAEU has actually fallen since the formation of the bloc, indicating that most members have pursued trade diversification rather than integration. Russia’s trade with other EAEU members is minuscule relative, for example, to its trade with China or the EU. And over 80 per cent of the EAEU’s trade is with external partners rather than between member states; in contrast, only one-third of the EU’s trade is with external partners.
A key structural flaw is Russia’s overwhelming economic dominance of the EAEU, and its corresponding reluctance to be constrained by it. Russia’s GDP in 2019 accounted for around 87 per cent of the EAEU’s combined GDP (in contrast, Germany and France, now the two largest EU economies, accounted for 25 per cent and 17 per cent respectively of EU 27 GDP in 2019, indicating a far more balanced distribution of economic power among member states). This asymmetry is also evident in the fact that most bilateral intra-EAEU trade is conducted with Russia, even though the country remains the least dependent on the bloc. The discrepancy in economic size, as well as political and military factors, means that Russia has the ability to take unilateral actions within the EAEU without significant costs and consequences to itself.
Russian trade policy within the EAEU
Since the EAEU’s launch, Russia has used trade policy without regard for the bloc’s rules (which in any event, as mentioned, are seldom binding). On occasion, Russia has chosen to ignore the costs of unilateral actions for other member states and the EAEU as a whole. This behaviour is not unprecedented: Russia’s trade policy has long been notoriously politicized and disrespectful towards international legal commitments, including those under the World Trade Organization (WTO). In 2014, for example, Russia blocked agricultural imports from the EU and trade with Ukraine, in retaliation for the imposition of Western financial and economic sanctions (interestingly, the other members of the then fledgling EAEU refused to follow suit, despite Russian pressure to do so).
Russia disregards the rules of the very organization through which it seeks to reassert its power, and with which it wants the EU to cooperate.
In other words, Russia disregards the rules of the very organization through which it seeks to reassert its power, and with which it wants the EU to cooperate. Trade policy does not constitute a separate, non-politicized track in Russia’s foreign policy; it is subordinated to it. Despite investing considerable political capital in the union and being its prime promoter, Russia all too often takes actions that undermine it.
Russia’s tendency to use trade as a political tool makes any alignment between the EAEU and the EU highly problematic. There is little prospect that this will change under Russia’s current, or even future, political leadership. While the EU pursues multi-layered, differentiated economic integration with non-members, the EAEU is dominated by Russia’s ad hoc trade policy, which involves offering favourable deals to loyal states while punishing disloyalty. In addition to using the EAEU to help achieve its foreign policy objectives, Russia prevents the integration of other member states into global free-trade frameworks, thereby locking them into Russia-dominated trading arrangements.
This instrumental use and deep politicization of the EAEU by Russia means, in short, that the EAEU is functionally unable to act as an integration body in Eurasia. The EAEU and the EU are fundamentally different and incompatible.
What is its impact on policy?
There is considerable disagreement among EU member states about the wisdom of using trade liberalization with Russia as a route out of sanctions. The mere existence of a debate on this subject is useful to Russia, allowing the Kremlin to benefit from ‘divide and rule’ tactics in provoking discord in Europe.
A further problem is that efforts to promote EU–EAEU cooperation and trade liberalization tend to bypass the failures of the Eurasian project and focus instead on the benefits of normalizing relations. Despite failed attempts to liberalize EU–Russia trade, the idea of a free-trade zone with the EAEU remains immensely appealing to some in the EU. The risk is that policymaking will be less realistic as a result.
This is not to say that the EU has been entirely blind to the difficulties of economic integration with the EAEU. Russia’s actions have forced the issue in some respects. For example, its military and economic response to the EU–Ukraine Association Agreement indicated how Moscow perceived trade liberalization and regulatory harmonization as threats to Russia. The collapse in December 2015 of trilateral talks on the association agreement confirmed the EU’s view about Russia’s lack of interest in functional solutions or trade liberalization; it was clear that Moscow was focused on geopolitical priorities rather than on seeking pragmatic solutions. Since then, the EU has restricted itself to file-driven, technical and issue-specific interactions with the EEC and individual EAEU member states, justifiably doubtful as to whether the EAEU would liberalize trade and comply with the WTO-based multilateral order.
If anything, the prospects for trade liberalization with Russia have become weaker since 2014. Russia has no economic interest in comprehensive trade liberalization with the EU, as it is unlikely to benefit from such liberalization: 82 per cent of Russia’s exports are energy commodities, largely unaffected by trade barriers. Other Russian sectors lack competitiveness, and would have to go through painful restructuring if exposed to international competition. Trade liberalization is not offered in any economic agreement signed between the EAEU and third countries.
Nonetheless, Russia continues to promise trade liberalization as an incentive to persuade the leaders of large EU member states to lift sanctions against it. Notwithstanding the pragmatic turn in EU policymaking outlined above, Moscow has still succeeded in enticing Germany and France into advocating for the European Commission to engage.
What would good policy look like?
Given Russia’s instrumental use of trade liberalization, it makes sense for the EU to limit engagement to ongoing technical dialogue with the EAEU. The EU should recognize that its interest in trade cooperation is unlikely to coax Russia into changing other priorities, either in the post-Soviet space or vis-à-vis the EU. For this, change in Russia itself is needed.
Given the nature of the Eurasian project, any EU engagement with the EAEU will require the utmost caution. It will need to be premised on Russia meeting clear preconditions, for example with regard to its actions in Ukraine and its WTO commitments. At present, fulfilment of any such preconditions appears a long-term prospect at best.
In any dialogue, it will also be important to prevent Russia from monopolizing the EU’s external agenda. Marginalization of the EU’s eastern neighbours, both inside and outside the Eurasian bloc, must be avoided. This is especially important given that some EU member states, such as Germany, remain keen on a ‘business as usual’ relationship with Russia and the EAEU with regard to economic ties.
In the short term, pragmatic engagement on issues such as trade facilitation – especially with regard to non-tariff barriers such as certificates, standards and regulation – is more likely to meet with success (however modest) than efforts at far-reaching structural integration. The ‘wait and see’ strategy favoured by the European Commission vis-à-vis the EAEU remains the most reasonable policy.
