Global Investing

Russia’s starting blocs – the EEU

July 23, 2013

The course is more than 20 million square kilometers, and covers 15 percent of the world’s land surface. It’s not a new event in next month’s IAAF World Championships in Moscow but a long-term project to better integrate emerging Eurasian economies.

The eventual aim of a new economic union for post-Soviet states, known as the Eurasian Economic Union (EEU), is to “substitute previously existing ones,” according to Tatiana Valovaya, Russia’s minister in charge of development of integration and macroeconomics, at a media briefing in London last week.

That means new laws and revamping regulation for “natural monopolies” in the member states, streamlined macroeconomic policy, shared currency policy, new rules on subsidies for the agricultural and rail sectors and the development of oil markets.

Kazakhstan and Belarus are the two other members of what is known as the Single Economic Space (SES), that is, the existing economic partnership between the three bordering countries established in 2012. So far Kyrgyzstan and Tajikistan  are co-operative members, Ukraine, Armenia and Moldova have been given observer status.

Since 1995, the SES3 and observer states have been moving ever closer to a shared set of structures under the EEU umbrella.

For Kyrgyzstan, accession depends on the fate of Tajikistan in terms of its accession. Once the blueprint is in place for Tajikistan, that should prepare the ground for Kyrgyzstan’s integration within the EEU.

In theory, economic integration brings improvements in institutional quality, better understood contracts and a reduction in the cost of trade. The World Trade Organisation in a recent report outlined some of the challenges and some potential responses to the global challenges, from agriculture and global climate change to the auto sector.

Russia perhaps sees its part in the acceleration of global trade as developing a fresh perspective on existing post-Soviet ties, moving ever further away from the stigmatic blow-out of the financial crisis.

“The global economic crisis made us realise that we needed to do something about integration because it is the only way which would allow us to find an input for growth,” Valovaya added.

The idea of the revamp of existing partnerships, which have been developing more closely since the new millennium, is to lower the cost of trade through the removal or reduction of trade tariffs, not dissimilar to the Free Trade Agreements (FTAs)  the United States has initiated and the Trans-Pacific Partnerships (TPP). Negotiations are ongoing for many emerging nations to play a larger part in customs unions, not solely in the post-Soviet bloc in central Asia.

Twenty five members have applied to join a free-trade zone with Russia, with the country having a particular interest in forming new links with New Zealand and Vietnam.

“Trade with the EEU is only about 30 percent with Europe…the idea is to create an economic union from Lisbon to Vladivostok.,” Valovaya said.

The outcome of post-Soviet integration depends on a vote on around 90 competencies, as rigorous as a political decathlon. Voting rights of the nations that will oversee the transformation of the EEC to the evolved EEU are as follows:

The Russian Federation – 40 votes

The Republic of Belarus – 20 votes
The Republic of Kazakhstan – 20 votes
Kyrgyz Republic – 10 votes
The Republic of Tajikistan – 10 votes

What is the benefit of a new customs union?

The auto sector, for example, will reap rewards. Gains are set for domestic-focused companies, according to research from the Boston Consulting Group.

Further integration internally may boost Kazakhstan’s application to join the WTO, which will be submitted by December according to the organisation’s website on June 5.

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