Two days that shook the CIS

by Andrey Borodaevskiy

On Oct. 18-19, eight of 11 members of the Commonwealth of Independent States (CIS) — gathering in St. Petersburg for its annual session — accepted a proposal from Russian Prime Minister and returning President Vladimir Putin to establish a free trade zone, thus taking a decisive step toward a Eurasian economic union.

The free trade agreement was sealed by the signatures of the representatives of Armenia, Belarus, Moldova, Kazakhstan, Kyrgyzstan, Russia, Ukraine and Tajikistan. Although Azerbaijan, Turkmenistan and Uzbekistan abstained from signing, they expressed the intention to join by yearend.

Many observers, those close to the ruling Russian “tandem” as well as its ardent critics, agree that this strong pitch by the main presidential candidate is his first move in the election campaign, creating for him the image of the “gatherer of Russian lands.”

We should not overlook one strong feature of Putin — his persistent attempts to make things happen according to his own scenarios. This notion, it seems, fully applies to the sudden massive effort to decisively rebuild the economic foundations of a Moscow-centric system using the legislative framework of the CIS.

Though the future president ardently denies what he calls “imperial ambitions,” no one can doubt that behind his move is the desire to reinstate Russia’s political leadership and economic “pole position” in the area of the former Soviet Union.

On the official website of the United Russia, we read the words of high-level party functionary Yuriy Shuvalov: “After decades of disintegration, a positive trend has begun to show quite clearly in the post-Soviet area. It does not mean that one single state will be created. For the countries of the Eurasian space, this trend signifies a wide integration process — in the economy, in the social sphere, in the humanitarian and scientific fields. I am sure that Russia must be the leader in this process. This is one of the key goals for the nearest future.”

The emergence of a new centripetal trend, with Moscow as the driving force, does not represent anything unusual or unexpected (though a smiling Putin pointed to the spontaneous character of the agreement). On the contrary, it seems unusual that it has taken so long — about 17 years — for this pro-integration perspective to be confirmed and reactivated (the idea of creating a free trade zone in the CIS was first proclaimed and included in official documents as early as 1993-94).

It is not difficult to identify at least one of the grounds why free trade ideas have been practically ignored for decades in the participating countries: Their customs services are and always have been among the most corrupt elements of the state apparatus. Officials at all levels did not want to lose “lawful income” from their manipulating various customs instruments.

It is also unusual that the initiator of this large-scale and long-term project of an integrative nature feels obliged to repeatedly offer quite obvious — even commonplace — arguments in its favor (such as creation of new stimuli for mutual trade, unification of economic conditions necessary for industrial cooperation, etc.).

All this, it seems, hints at the off-the-cuff nature of the initiative, which does not diminish its objective potential significantly. The initiative is sound and long overdue; in addition, the timing of its announcement — less than two months before the parliamentary election and only a few days after the announcement that Putin would return to the Kremlin — is perfect.

Now, the whole perspective can be seen and evaluated. The Eurasian Economic Community, founded in 2000 by the five CIS states — Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and Russia — is said to be close to its practical implementation. A separate agreement establishing a customs union (CU) was signed July 1, signifying the creation of a “common customs territory” for three countries — Russia, Kazakhstan and Belarus.

As Putin noted in his article in the national newspaper Izvestiya on Oct. 4, this agreement has already led to growth in the mutual trade of member states by one-third. In the working negotiations during the October session, Kyrgyzstan was approved as the fourth CU member.

Since the common economic space (CES) of the same three countries also must be put in place and begin functioning by Jan. 1, eventually there could be four (with Kyrgyzstan) or even five members if we count Ukraine, whose intention to join the CES was aired June 28.

In his newspaper article, Putin expressed the conviction that the introduction and development of these two institutions — the CU and the CES — will “lay the foundation for a formation in the perspective of a Eurasian economic union.”

During the meeting in St. Petersburg, the heads of all CIS states accepted the aim of creating such a union by the year 2015. Summing up, Putin expressed the idea that the Eurasian economic union may become a new “pole” on the political world map.

Now, let’s try to see what these slightly chaotic but interconnected and unidirectional events augur for the near future. First of all, a general trend toward post-Soviet economic re-integration has become obvious. Yet several “speed-tracks” can be distinguished: “Hesitant” countries such as Ukraine, Azerbaijan, Uzbekistan and Turkmenistan tend to move more slowly than the obvious leaders — Russia, Belarus and Kazakhstan. Some eventual partners of the integration effort seem to be visibly weaker and will constantly need additional stimuli, including financial assistance, etc.

It is in no way clear how the mechanisms of the free trade zone and CU will coexist and interact — especially with complicated cases like Ukraine (which has ventured to join the free trade zone but to remain outside the CU). The head of the Ukrainian delegation has called the free trade agreement “imperfect.” That provoked a reaction from Putin and other speakers who — quite justly — pointed to the incomplete and imperfect nature of integration schemes worldwide. Working together to improve integration tools is normal.

More important seems to be the question of “exceptions” included in the signed agreements. Sure, various exceptions and escape clauses routinely figure in such arrangements. They represent tools — usually of a protectionist nature — widely used in the modern world, notwithstanding the trade-and-investment liberalization frenzy. But they differ.

For one, what does it mean to exempt from a free trade regime such groups as energy, fuels and metals? Just that the lion share of Russian exports will remain nationally regulated. It also means that eventual deliveries of such goods to Russia, say, from Kazakhstan, will meet with existing tariff and nontariff barriers.

In another case, it is obvious that free trade in foods and consumer goods will stimulate their output in Belarus, Ukraine and other member countries in a much stronger way than in Russia with its relatively higher production costs.

Finally, what real good can come from a CES of countries all known for overregulation, excessive restrictions, red tape, nontransparency and corruption (to say nothing of nationalist inclinations)?

For all that, the scheme might work. Maybe Russia will get more breathing space for economic modernization and diversification. On the other hand, the new large-scale free trade endeavor might fail — as it did in the 1990s. Even according to the best scenario, the results may be only palliative in nature. With the possible exception of Russia, the CIS countries are simply too poor and too primitive structurally to be able to exercise a strong positive influence on each other.

Then again, the whole arrangement has been negotiated and signed by several autocratic leaders, spontaneously and without any transparent show of expertise or wide public discussions. Also, one may wonder what China’s attitude will be to developments taking place in the Shanghai Cooperation Organization area but pointedly outside its framework.

It seems that in the age of globalization, something much bigger and more sustainable must be in store for Russia, especially for its forsaken eastern regions. The vital and complicated issue of working out a multinational recolonization mega-project for Siberia and the Russian Far East deserves further analysis.

Russian professor Andrey Borodaevskiy, with half a century of research and teaching experience in the world economy and international economic relations, is co-author of the recent monograph “Russia in the Diversity of Civilizations.” His email address is annabo36@mail.ru