Russia and the Big Integration (as opposed to the Small one)

Anatoly Pankovsky, Valeria Kostyugova

Summary

Despite all last years’ efforts to diversify foreign, trade and energy policies, Belarus has become heavily dependent on Russia in 2011. Given the isolation, which was the price Alexander Lukashenko had to pay to win the election, the country has largely surrendered positions in negotiations with the only ally left. As a result, Belarus was dragged into the Customs Union (CU) and the Common Economic Area (CEA) thus giving up possibilities for an economic upgrade and giving Russia strategic control over the gas transit network.

Moreover, last year Russia became the only creditor of Belarus’ inefficient economy, which lead to even more limitations on the independence of the latter’s economic policy. The eventual upshot was that by 2012, Belarus to a large degree gave up its independence in foreign and economic policy and lost control over strategic advantages of its geographic position.

However, these changes are not irreversible, except for the loss of a great deal of the transit infrastructure primarily because the parties keep building up national infrastructures (at least Russia does) although Belarus’ foreign policy is limited to relations with its only partner.

Belarus and Russia have been maintaining relations while staying suspicious to each other’s intentions. The integration project – Belarus-Russia Union State – has actually been taken over by the trilateral Belarus-Russia-Kazakhstan Customs Union.

Trends:

Introduction

The outcome of the presidential election of December 19, 2010, which ended with the arrests of former presidential candidates and a crackdown on political opponents of the regime throughout the year 2011, predetermined focusing of Belarus’ foreign policy on Russia and its one-way dependence on its only powerful ally. Belarusian-Russian relations concentrated on three basic areas: credit support from the EurAsEC anti-crisis fund, energy supplies and transit of Russian energy through Belarus. The degree of this interaction was determined by severity of the economic recession Belarus had been dealing with since last spring.

Apart from interaction in the specified areas, political relations between the allies remained strained although both managed not to drift into heated confrontations as they did in 2010.1 Russia refrained from rhetorical support for Belarus’ actions in the international field thus trying to neutralize the Belarusian factor in the context of its presidential campaign using mostly information resources.

In general, bilateral relations were supposed to be less “specific”, and regional competitive advantages, such as concessions, subsidies and low-cost government loans which Belarus had in the Union State, were appropriated by other post-Soviet institutions. For instance, Russia did not respond to Belarus’ application for a government loan and suggested the partner trying its luck with the EurAsEC fund, while the oil-and-gas-feeding stimulant was now offered within the Customs Union of Russia, Kazakhstan and Belarus.

Post-Soviet multi-integration

In 2011, Russia was living in wait for the presidential campaign. Heavily intensified promotion of integration projects in the post-Soviet space – the process which possesses its own logic and value – was a crucial component of pre-election efforts. They basically aimed at reconstruction/creation of a global transit infrastructure around the periphery of the Russian Federation with the participation of the transit countries and energy suppliers (Belarus, Ukraine, Kazakhstan, etc.) alongside the usual imperial intents and connotations of the integration goals.

Appreciable results were achieved that year, namely creation of the Customs Union of Russia, Kazakhstan and Belarus and, since January 1, 2012, the Common Economic Area which, as a matter of fact, offer a common market with free movement of goods, services, capital and labor force; harmonized tax, monetary, currency, trade and customs policy (these goals are proclaimed in CEA documents). Also, on October 18, 2011, the Council of the CIS Prime Ministers signed a new agreement on the CIS free trade zone joined by two GUAM members, Ukraine and Moldova.

Benefits of the Russian integration initiatives are not obvious yet and, probably, will not be in the foreseeable future, while certain achievements have been made when it came to blocking of competing projects of GUAM and Eastern Partnership.2 In 2011, Vladimir Putin came out with another initiative – transformation of the Eurasian Economic Commonwealth into a Union – and EurAsEC member states endorsed the idea.

Meanwhile, the strenuous efforts aimed at promotion of integration initiatives raise the question of how EurAsEC, the Customs Union of EurAsEC, the Union State of Russia and Belarus, CEA, and CIS (with its key purpose to legitimize elections in the post-Soviet republics, which actually has not worked and the CIS is now some sort of a big zone of half-free trade) are supposed to coexist and cooperate functionally. Firstly, it is quite clear that the lack of proper integration-related coordination shows substantial disagreements between the members of all these “Eurasian unions” and groups in the post-Soviet governments inclined to speed up some projects to the detriment of the others.

Secondly, it is possible to see certain benefits of each of the forums: CEA questions and EU sanctions against Belarus can be addressed at EurAsEC summits together with the observer countries which do not attend CEA summits; Customs Union affairs can be discussed and some political statements can be made during CIS forums, and so on.

The very existence of some integration forums signifies a kind of integration communication which often has nothing else in it except agitated sovereignization and separation of economies below the surface. It means that the presence of various associations (sometimes with overlapping functions) does not make it possible to unite the post-Soviet countries in one hyper-institution like the European Union.

The Customs Union of Russia, Belarus and Kazakhstan is the most intensively developing form of association mostly owing to Russia’s efforts and because the participants are few. The infrastructural component (ample and rapid transit from China to Europe and back) is the main purpose of the CU because Russia is apparently determined to become a transit country like Belarus and Ukraine, only a much bigger one. According to Russian government experts, using the CU capacities to the full can make transportation of cargoes from China to Europe almost four times quicker.3 Purely economic augmentation is also considerable: in 2012, the CU is expected to give Russia a profit of nearly USD 400 billion, Belarus and Kazakhstan count on USD 16 billion each. The CU can stimulate economic development and secure a 15% GDP growth in the member countries by 2015.4 This is what the positive expectations are about.

At the same time, development of the CU is accompanied with heightened risks, first of all when it comes to instability of national economies and, specifically, increasing consumption of Russian and Kazakh energy by the European Union. The second risk concerns the key feature of the CU, namely the unification of customs duties and restrictions (except for special protective, antidumping and compensational measures) which are also pulled up the WTO level.

Like other associations of the kind, the CU is a collective form of protectionism, but it does not guarantee that the CU partners will not apply restrictive measures to each other. More likely, it will even heat up some internal trade disputes and wars. Besides, unification of customs duties presents an immediate threat to the principle of “specification” which the Union State of Russia and Belarus is based on. Owing to this association, Belarus has been provided with specific competitive advantages, i.e. gas and oil subsidies, an access to the Russian market, etc. for years, making no comparable concessions such as access to its market, unification of macroeconomic policy, or discontinuance of state sponsorship of domestic manufacturers, i.e. the advantages which enable the government to secure the so-called “Belarusian miracle.”

Stepped up development of the Customs Union actually means demolition of the Belarus-Russia Union State especially if Russia managed to draw Ukraine, Kyrgyzstan and Tajikistan into the CU.

Demolition of the Union State

So, the enlargement and unification seriously endangers “specificity” of Belarusian-Russian relations, therefore Lukashenko was so nostalgic for the Union State thus pointing out that the CEA and CU were direct competitors of the Union and insisting that the Union was the most advanced integration association the example of which all others should have followed.

EurAsEC is certainly not an exception: in December 2011, the Belarusian leader made a “realistic” estimate of this association saying that his country would not finance EurAsEC and its officials, who had already fulfilled all their tasks, anymore. He emphasized that EurAsEC had exhausted itself and further cooperation on the post-Soviet space would be effective within the framework of the CEA which Kyrgyzstan and Tajikistan were welcome to join.

Lukashenko’s irritation most likely reflects the situation with the EurAsEC loan which was overloaded with terms including the demand to reform Belarus’ economy. On June 9, 2011, Belarus and the Eurasian Bank signed an agreement on a EurAsEC loan to the total amount of USD 3 billion in six tranches 2011 through 2013.

The first tranche worth USD 800 million came in June 2011; then 440 million were given in December 2011. Speaking about the probable terms of the third tranche, Nadezhda Yermakova, Chair of the Board of the National Bank of Belarus, said, “Technically, the terms of agreement with the anti-crisis fund are fully met. But the fund believes we need to tighten these terms. The basic claim concerns structural transformation which means privatization of state property. I think we have our own head on shoulders and we know better what needs to be changed and what does not. As concerns the numerical values, we have done everything we were supposed to do.”5 She actually let them know that the EurAsEC loan terms have little difference from the IMF terms and Belarus can hardly expect quick and easy money.

As concerns the Customs Union, the Kremlin perfectly understands that this association can only be successful – i.e. it will start bringing the anticipated benefits – if Russia combines enforcement with specific inducement. Therefore the special oil advantages6 which Belarus used to enjoy in the Union State become a component of the Customs Union’s joint tariff policy. As a matter of fact, the CU substitutes the Union State some way or another.

The greater goals of the CEA (as compared with those of the CU), such as creation of a single market with agreed tax, monetary, currency, trade and customs policy retailored to fit the CEA, are very remote. Considering the outcome of the year 2011, it is impossible to predict how they can be achieved within the Union of three autocratic states with unstable economies. Experience of the Union State with three projects on the joint energy and gas transport system, single currency and unified constitution is quite illustrative in this respect. Only one out of the three projects has been implemented and even that one was not what Belarus wanted to see: Russia bought out the Belarusian gas-transport network.7

The other projects of political and economic association (in particular the single currency launch) have been taken to the CEA, in other words, they are a matter of the distant future which none of today’s politicians is responsible for. The future hides failures and shortcomings of the past as nothing else.

Conclusion

Further Belarusian-Russian bilateral cooperation in a number of key areas will flow into multilateral interstate associations. Accordingly, the hothouse conditions of the post-Soviet associations will get worse for its members as Russia accepts the international trade rules becoming a part of global economy. It means that involvement in Russian integration initiatives does secure Belarus’ undisturbed prosperity and only postpones an economic reform. At the same time, given the huge amount of Russian transit through Belarus, Russia is likely to cushion the possible shock to Belarusian economy, at least at the rate of the standard transit insurance of USD 3 billion to 4 billion a year.