Eurasian Economic Union: Russian Economic Statecraft

By Clay Moore

The Eurasian Economic Union (EEU) is an economic and customs union originally consisting of the Russian Federation, Belarus, and Kazakhstan.  The EEU is the culmination of a trend in the Eurasian space of regional economic and security-based collaboration between certain members of the former Soviet Union.  However, this trend has been rife with competing national interests in the realms of state sovereignty, distrust of partner-states’ intentions, and a hesitation to create supranational institutions with any leverage over national governments.  From an external perspective, the EEU, with a common market of 170 million customers, a combined GDP of over $2.7 trillion PPP, and a centralized location, cannot be ignored by the large economies of China and the European Union. The economic union originated as an opportunity for Russia to exert economic statecraft both on member-states as well as to consolidate economic connections with the European Union and China; however Russia has been unable to cogently utilize the union to accomplish these goals.

Internal Dynamics

Following the fall of the Soviet Union, newly-independent states in the central Eurasian region sought to form an amalgam of security and economic treaties to establish a baseline of cooperation in the new geopolitical environment.  Regional organizations such as the Commonwealth of Independent States, and eventually the Eurasian Economic Community were created to increase security and economic cooperation in the region.  Due to Russian economic and coercive power, it would come to dominate these organizations, utilizing them to exert its influence on member states.  Formally effective in 2015, the Eurasian Economic Union is the latest incarnation of this Russia-dominated trend, bundling a pre-existing customs union, an economic space, and an economic community organization into a unified organization with, for the first time, supranational institutions, the Eurasian Commission, the Eurasian Intergovernmental Council, and the Court of the Eurasian Economic Union.

However, from the draft stages of the original 2014 treaty, these supranational institutions have been rendered less effective than expected, as member states have actively worked to undermine their capabilities, or outright ignored them.  The Russian counter-sanctions against the European Union were enacted without any consultation or coordination with other members of the Eurasian Economic Union, leading to problems such as Belarusian firms repackaging European foodstuffs and reselling them on the Russian market.  The crisis with the ruble also influenced the tariff schemes in the customs union, as large numbers of Kazakh and Belarusian distributors are purchasing cheap goods in Russia and returning to their domestic customers.  The unified tariff zone is being largely ignored as national governments are implementing limitations on cross-border trade, including a temporary Kazakh ban on the import of some Russian petrol products in spring 2014. These breakdowns of this approach of the EEU indicate a consistent lack of resolve from member-states to empower a rule-based institutional approach towards intra-union trade.  More broadly, it reflects a larger challenge of regional integration, as well as a failure of Russia to effectively utilize the union to coerce and influence fellow member-states.

External Dynamics

From an external perspective, Russia has been largely unsuccessful in coercing member states to avoid making bilateral agreements with external economic giants like the European Union.  In early 2015, the European Union and Kazakhstan concluded an enhanced partnership and cooperation agreement which facilitates stronger political and economic relations and contributes to Kazakhstan’s political and social development. This is the latest step in the deepening of Kazakh-EU relations, and the most relevant since Kazakhstan’s entrance into the Eurasian Economic Union.  While Russia surely does not appreciate the increased cooperation between the EU and Kazakhstan, it remains hesitant to overtly punish the member-state, as it would further degrade any incentive for states aspiring to join the union.  However, the Kremlin had little qualms about punishing a state whose populace had little desire to join the trading bloc.  The winter 2013 revolution in Ukraine and subsequent Russian intervention demonstrated the resolve at which the Kremlin seeks to expand the EEU.  While the formation of the union was not finalized at the time of Ukrainian president Yanukovich’s ouster, the intent was for Ukraine, with her large population, strategic location, and relatively developed industrial sector, to be a founding member alongside Belarus and Kazakhstan.  Following the revolution and the subsequent government’s signing of the EU association agreement, Russia was forced to create the union minus what would have been the second largest economy to join.  While Russia has exerted coercive economic and military power to punish states who avoid the union, the EU-Kazakhstan agreement shows that it has avoided using similar tactics to punish states within the union.

Additionally, Russia has been advocating the establishment of Free Economic Zones with non-Eurasian Economic Union states and regional blocs.  So far, an agreement has been made with Vietnam but other, more lucrative agreements remain in limbo, subject to the whims of international politics.  These agreements would appear to benefit all Eurasian Economic Union member-states as a whole; however the state of economic development of the external partner state dictates the potential gains of an individual state within the union.  Thus, the presence of a member-state veto power can serve to stifle external economic ties and promote intra-union rent seeking from the less developed member states such as Belarus.

Large economic blocs are taking notice of the Eurasian Economic Union.  The European Union has begun to receive pressure to begin to develop policy regarding the EEU.  European businesses are operating in the EEU space, filing customs declarations without coordination at the top, and lobbying for a formal framework of relations.  However, the political crisis over Ukraine and the absence of Kazakhstan and Belarus from the World Trade Organization will work to dissuade direct engagement with the EEU as a whole.  China, on the other hand, made an agreement with Russia in May 2015 to coordinate her new infrastructure-centric Silk Road initiative in central Asia with the EEU in order to create a “common economic space”.  Although China and Russia are hesitant to convert this understanding toward a common free trade agreement, the fact that China plans on consulting with the EEU as a whole rather than individual states highlights China’s recognition of Moscow’s potential sway in the region.

Overall, the Eurasian Economic Union has failed to serve as an adequate conduit to coercively exercise economic statecraft; sometimes its presence has sabotaged policy from Moscow.  However, with the vast majority of the resources in the union under its control, Russia has the option to ignore or utilize the supranational institutions to coerce disobedient member-states.  It remains to be seen if Moscow desires to approach this precipice of economic statecraft, as once it is crossed, there is no return.

Sources and Further Reading

World Bank Data.  GDP, PPP (current international $)

Eurasian Economic Commission.  The Treaty on the Eurasian Economic Union is Effective.  1 January 2015.

Piper, Elizabeth. ‘Parmigiano-Belarussiano’ and other secrets of Russian chefs under food ban.  10 September 2014.  Reuters.

Rutz, Julia.  Kazakhstan Imposes Temporary Ban on Some Russian Fuel Imports. 18 March 2015. The Astana Times.

Schenkkan, Nate.  What Future for the Eurasian Economic Union?  11 March 2015. The Harriman Institute at Columbia University SIPA.  Conference Lecture.

European Union External Action.  Press release: EU and Kazakhstan initial Enhanced Partnership and Cooperation Agreement20 January 2015.

Papava, Vladimer.  Economic models of Eurasianism and the Eurasian Union: why the future is not optimistic.  29 October 2015.  The Central Asia Caucasus Analyst.

Dragneva, Rilka.  What Future for the Eurasian Economic Union?  11 March 2015. The Harriman Institute at Columbia University SIPA.  Conference Lecture.


Clay's picClay Moore is a Master’s Candidate at the Patterson School of Diplomacy and International Commerce.  He focuses on Russian and Eastern European economics and security.  Questions?  Comments?  Opportunities?  Feel free to email him at cjm0192@gmail.com

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