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Russia tries a ménage à trois

With moderate fanfare, yet another multilateral economic cooperation agreement was signed among a limited number of the Soviet successor states this month, in Astana, the capital of Kazakhstan. Belarus, Kazakhstan and Russia signed up to a customs union in the margin of a meeting of the EurAsian Economic Community (EurAsEC), which also counts Tajikistan and Kyrgyzstan as members.

Russia had hoped that at least Kyrgyzstan might also consider signing on, but the recent and continuing political upheaval in that country made it impossible for it to participate in the preparatory work. Nor were small and medium entrepreneurs in Kyrgyzstan keen on the prospect, while the country is already a member of the World Trade Organization (WTO): which Russia is not. Armenia and Ukraine attended the EurAsEC meeting as observers.

Had Kyrgyzstan joined, then the customs union's membership would have been exactly the same as that of the so-called Group of Four formed within the organization of the Commonwealth of Independent States (CIS) in the early 1990s during the economic upheaval following the dissolution of the Soviet Union.

The Group of Four served in practice as the multilateral basis for the failed re-invigoration of a limited-membership CIS Customs Union at the end of the 1990s, from which the leaner EurAsEC emerged in 2000. It appears that EurAsEC is progressively taking over economic functions of the CIS, at least on paper. The trilateral agreement established a EurAsEC court that the three members will use instead of the CIS Economic Court.

The documents signed among the three parties establish a single market for goods, labor and investment to enter into force at the beginning of 2012. Kazakhstan's President Nursultan Nazarbaev has proposed creating a common "non-cash" currency called the yevraz (from the Russian word for "Eurasia"), which would, however, likely have little effect.

The yevraz proposal seems to make it functionally equivalent to the "transferable rouble" that was used among Comecon members during the Soviet era exclusively as a bookkeeping device for balancing national accounts with one another. It was not convertible into Western currencies, nor even (in contrast to the actual Soviet rouble) into anything that anyone could carry in their pocket and use to pay for anything in the region.

Russian observers suggest that although the initiative to establish a customs union within the EurAsEC had been under way for some time, it was the European Union's announcement of its "Eastern Partnership" initiative in spring 2008 that propelled Moscow into more vigorous action. The EU's Eastern Partnership program was a knock-on to the European Neighborhood Policy (ENP), which extends beyond the former Soviet area into the Middle East and North Africa around the littoral of the Mediterranean Sea. However, the ENP included Armenia, Azerbaijan, Belarus, Georgia Moldova and Ukraine within that broader framework.

The Eastern Partnership was designed to enhance the EU's focus on these countries, which have more in common among themselves than with the other partners in the ENP. Indeed, the Eastern Partnership was originally presented as the "Eastern dimension of the ENP", but it went beyond the ENP with the programmatic intent to offer Association Agreements with the EU, free-trade areas leading eventually to economic integration, visa liberalization, cooperation over energy security, and EU-assisted regional development programs including assistance for developing small and medium enterprises.

Incongruously, and unwisely, the new head of EU diplomacy, Baroness Catherine Ashton, has proposed abolishing the post of EU Special Representative for the South Caucasus, currently occupied by Peter Semenby.

In June 2009, Belarus, Kazakhstan and Russia agreed on a unified customs tariff, which entered into force this month. The effect of the customs union's entry into force upon Russia's application for membership of the World Trade Organization as well as upon its trade flows with the EU remains to be determined. The new agreement is far from the first attempt to establish some form of international institution for economic cooperation among some number of the "newly independent states" (NIS, actually a term from international law, although they aren't so "newly" independent anymore) or Soviet successor states.

The Customs Code itself entered into effect on July 6 following the acceptance by Belarus's President Alyaksandr Lukashenka of Russian terms for settling a dispute over energy payments involving export duties. The other two countries had already signed the agreements at the beginning of the month.

Lukashenka first maintained that the Russian export duties could not apply because of the Customs Union, and then he offered to settle in kind (paying, for example, with capital goods such as farm machinery) rather than in cash. Russia had even begun to decrease gas exports to Belarus as from June 21. Lukashenka eventually capitulated.

The participation of Belarus is important because it gives a veneer of multilateralism to the project, which like other similar cooperation and integration projects in the past mainly represents an attempt between Russia and Kazakhstan to find a way to regulate their mutual economic relations.

Thus in the post-Soviet jumble, not only did the Group of Four try to establish itself as a customs union in the 1990s but also, even earlier, in 1994 the Central Asian Union was created by Kazakhstan, Kyrgyzstan, and Uzbekistan with a political and as well as economic vocation.

The name changed to the Central Asian Economic Community (CAEC) when Tajikistan joined in 1998, and then in February 2002 to the Central Asian Co-operation Organization (CACO, comprising Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, plus Russia after October 2004). Finally in October 2005, CACO was absorbed by EurAsEC, although Uzbekistan did not in fact integrate into this body.

The economic and trade specialists of the countries concerned, who in general have a high level of training, are therefore accustomed to endless reorganizations during which they continue to publish very professional administrative documents that end up having little or no international effect due to poor institutionalization of procedures and the irrationality of the political superstructures that govern the bureaucracies within which they function.

The countries involved here are mainly pursuing their individual interests and seeking to enhance their spheres of influence under a multilateral cloak. If the organization does not serve this purpose for them individually, then it will lose whatever life it may gain from this difficult birth, much as appears to be happening over the past few years with the Shanghai Cooperation Organization (members being China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan, with various other states in the immediate region and beyond having the status of observer, dialogue partner or guest).

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URL:  http://www.robertcutler.org/blog/2010/07/russia_tries_a_menage_a_trois.html
First published in Asia Times Online, 8 July 2010.

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