Russia, Belarus and Kazakhstan Announce Eurasian Economic Union

Russia, Belarus, and Kazakhstan inked a deal last week to formally establish an economic union between them, capping approximately two decades’ worth of talks. The bloc – termed the Eurasian Economic Union – notably does not include Ukraine, and comes at a time where Moscow’s geopolitical rift with many of its Western partners shows no sign of resolution.

Meanwhile, the Ukrainian government under President-elect Petro Poroshenko has lately reaffirmed its interest in signing a long-awaited trade pact with the European Union. His predecessor, Viktor Yanukovych, had chosen not to sign the pact late last year, in a decision which sparked the Ukraine crisis and ultimately ousted him from office.

Which integration project Ukraine would eventually join – and what it would mean, in both economic and geopolitical terms – has been a hot topic on the international agenda for months. Russia had long lobbied against Ukraine signing onto the EU trade deal, arguing that it would be incompatible with its own Eurasian integration initiative, while European officials had insisted that any decision should be solely up to Ukraine, without outside pressure.

In the wake of the Ukraine crisis, analysts have remarked on an apparent increase in interest on Russia’s behalf on cementing other trade ties, given the growing economic isolation it has faced from partners such as the US and EU.

Along with this latest step in the broader Eurasian integration project, Moscow recently clinched a multibillion dollar natural gas deal with Beijing – one that would give Russia an opportunity to focus its energy trade elsewhere, given the EU’s wariness of continuing its own heavy reliance on Russian gas sources.

Meanwhile, leaders of the G-7 industrialised countries – Canada, France, Germany, Italy, Japan, the United Kingdom and the United States– are meeting this week in Brussels, where their relationship with Russia is expected to be one of the main items on their agenda.

The G-7 had decided to suspend its participation in the G-8 summit – essentially the same group, together with Russia – in light of recent events, as Moscow holds the rotating presidency of this latter configuration.

2015 launch

The new Eurasian Economic Union would enter into force at the beginning of next year, and is expected to cover a market of 170 million people– a size that could grow should Armenia and Kyrgyzstan also join. The latter two have both expressed interest in the agreement, and leaders from the three current members have indicated that their entry will be approved in the coming months.

The planned economic union, which builds upon an existing customs union between the three same countries, was announced in the Kazakh capital of Astana late last week, with that country’s president referring to the decision as the launch of a “new geo economic reality.”

Even so, Kazakh President Nursultan Nazarbayev acknowledged, the process ahead will not be easy for the three neighbours.

The deal had stumbled in recent months over a disagreement between Moscow and Minsk on oil duties. However, Russia recently agreed that it would send 23 million tonnes’ worth of duty-free oil this year to Belarus. Meanwhile, Belarus – which exports oil products back to Russia – would be able to keep US$1.5 billion next year of the usual duties it pays on sending those latter goods back across the border.

Russian President Vladimir Putin, who has come under fire from his Western partners in recent months over his handling of the Ukraine crisis, also highlighted that the Union’s members had faced “heated disputes” and “serious disagreements” in their efforts to clinch a deal. However, he noted, the final result has “an enormous production, research, and technological potential and huge natural resources” – one that could prove attractive to others.

Goods, services, capital, and labour will be able to move unhindered, officials said. However, Belarus’ Lukashenko acknowledged, some issues involving their trilateral economic cooperation – especially those involving trade – will be addressed at a later time in order to facilitate continued work on these areas.

Energy markets, however, would not be integrated until 2025, which was reportedly at Russia’s request, given the importance it places on oil and gas exports. The country is by far the economic heavyweight of the group, and some experts have suggested that lifting trade barriers with Minsk and Astana could come at an economic cost for Moscow.

The respective parliaments of the three countries will next need to ratify the document, in order to meet the target launch date of 1 January 2015.