Creating a Eurasian Union

Economic Integration of the Former Soviet Republics

Y. Vymyatnina, D. Antonova

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137396648
• Topic: Business
• Subtopic: Business General
• Index: Business

Creating a Eurasian Union offers a detailed analysis of the economies of the Customs Union of Russia, Belarus, and Kazakhstan and the proposed Eurasian Union. The authors employ econometric analysis of business cycles and cointegration analysis to prove the fragility of the union's potential economic success. By providing a brief description of the economic integration of the former Soviet republics, this pioneering work analyses the on-going trial and error processes of market integration led by Russia.Vymyatnina and Antonova's distinctive argument is the first consistent analysis of the emerging Eurasian Union. They incorporate both a non-technical summary of the integration process and previous research and analytical comments, as well as a thorough empirical analysis of the real data on the economic development of the participating countries, to caution that the speed of integration might undermine the feasibility of the Eurasian Union.

1

Post-Soviet Integration: Fictive and Derivative

The issue of integration on the post-Soviet space has been extensively discussed in the political sciences literature and regionalism studies. Economists were not so concerned with the integration projects since most of them did not imply any serious economic integration; the only exceptions were discussions of potential introduction of a common currency in the post-Soviet space. Below we present the review of political and economic viewpoints on the integration between the former Soviet Republics with a view to identify a gap in existing studies of the issue.

Ex-USSR Integration—A Political Viewpoint

The region of post-Soviet countries (with the exception of the Baltic states) has been notoriously known for multiple integration attempts in the region. This invoked such figurative descriptions as “alphabet soup” (Nikitin 2007: 3) or “spaghetti bowl” (Pomfret 2009: 51). Based on a number of studies¹ Wirminghaus (2012: 24) estimates that in the post-Soviet space between 1991 and 2010 there were no less than 39 different integration attempts, and in 36 cases integration organizations were established. Even disregarding those integration initiatives that were continuation of existing organizations, 20 new ones still remain in this timeframe. Of these in 14 cases, organizations were remodeled with a name change; in 18 cases, organizations were enlarged or lost some of their members. The first decade was especially fruitful in terms of integration initiatives: 28 new organizations were formed; but even in 2000s, 11 new integration initiatives emerged (Wirminghaus 2012: 25).

The Soviet Union had not yet officially broken up when the first integration agreement—Belavezha Accords by Russia, Ukraine, and Belarus in 1991 (named “a stunning surprise” [Church et al. 1991])—was signed. Since then proliferation of failed regional integration among these countries became a central topic of academic debate in political sciences and regional studies (Wirminghaus 2012: 26). The numerous research papers concerned with integration initiatives among ex-USSR countries offer periodizations of integration processes and classifications of integration schemes, try to test validities of various integration theories, to determine factors contributing to success or failure, to provide analysis of policy decisions contributing to the dynamics of integration processes. In what follows we try to present analysis of integration in post-Soviet space throughout time in economic and security dimensions with comments on the relative importance and validity of integration theories during the corresponding periods. In dividing integration dynamics into distinct periods we follow Libman (2011) and Kosikova (2007).

The Early Stage of Integration (1991–1993)

This first integration attempt in the region led to the formation of the Commonwealth of Independent States (CIS)² on December 21, 1991. Its main goal, formulated in a well-known phrase of Leonid Kravchuk—“civilized divorce” (citation from Molchanov [2009: 336])—referred to the need of solving a number of common problems after the breakdown of the Soviet Union. Economically the early stage of integration was relying on preservation of the existing ties, most notably of the common currency—the period of 1991–1993 is characterized by the “ruble zone” existence. In security sphere the Collective Security Treaty³ (CST) was signed on May 15, 1992.

These unions are considered in the literature as Russian centered and problem driven (Wirminghaus 2012: 28). Economic problems at the first stage of independence were related to two facts: (1) that of essential codependence of countries as the USSR was economically a highly integrated country with a common market and specialized division of labor between the republics, and (2) the fact that goods produced in the former Soviet Union were uncompetitive in the global market (Guriev and Ickes 2000). Hence, ruble zone with Russia as a natural center was a solution at the very beginning of the transition period. In terms of security most threats for the former USSR countries concerned several countries (Collins 2009: 260) and propelled the Russian-centered security integration (Wirminghaus 2012: 30).

Apart from common problems this period is characterized by a low degree of national-identity sentiments in a number of post-Soviet countries—first of all in Central Asia and, in part, in Belarus (Libman 2011: 1334). At the same time countries of Central Asia started an example of regional integration without Russia with the Central Asian Commonwealth being formed in 1991. One should not look too far for the factors driving regional cooperation in this period relatively unsuccessful—transition period with large economic disruptions implied that countries were more oriented toward their own needs compared to any possible common good. This validates neorealist power politics explanation (Wirminghaus 2012: 39).

The Stage of Deepening Transition (1993–Beginning of 2000s)

During this period, in the economic part of the spectrum of integration attempt, the CIS was appended in 1993 by the CIS Economic Union. It was formed largely to provide a forum for resolving economic issues after the transitional ruble zone had dissipated. It proved to be nonworking for a number of reasons, including Russia’s discontinuation of implicit subsidizing of energy exports to the former Soviet Republics, the desire of the newly independent governments to use the seigniorage revenues (Orlowski 1993), and, not the least, to support national identity with national monetary unit. The integration attempts, however, continued with the preliminary agreement on the Free Trade Area in 1994, which was never signed. This was followed by the creation (on paper) of the Eurasian Economic Community⁴ (EurAsEc or EAEC) in 1996 with a subsequent treaty signed in 2000 and ratified in 2001. This period is also marked by the creation of the Union State of Russia and Belarus.⁵ In the security sphere the CST continued its operations.

It is in this period that several initiatives of regional integration that excluded Russia took place. An important and relatively homogeneous region continuing its integration attempts was Central Asia. The Central Asian Commonwealth transformed into the Central Asian Economic Union in 1994, then into the Central Asian Economic Cooperation in 1998, and into the Central Asian Cooperation Organization (CACO) in 2002. As can be seen already from the name transformation, the main stress was on economic cooperation. The need for integration initiatives among Central Asia countries is justified through a number of factors: labor migration (Zhukov and Reznikova 2006), transit infrastructure (Czakó 2005), interstate water consumption (Wirminghaus 2012), and border delimitation and control (Zhalimbetova and Gleason 2001).

Another post-Soviet attempt at regional integration without Russia is usually abbreviated as GUAM:⁶ GUAM Organization for Democracy and Economic Development was formed first in 1997 (later renamed into GUUAM to account for Uzbekistan’s participation, but then it withdrew its membership) with its formalizing charter signed in 2001. The GUAM was created as an anti-Russian coalition with little economic grounding or political agenda (beyond anti-Russian rhetoric).

This period can be characterized as being more diverse in integration attempts (with only part of them Russia centered), more oriented in its rhetoric on building “European Union (EU)–like” partnerships, and the underlying reasons for cooperation in most cases went further than potential common solutions of common problems. There were exceptions though: Gleason (2001: 1082) suggests that the CIS Economic Union is a direct reaction to the economic depression that followed the breakdown of the Soviet Union. At the same time, though EAEC is considered as being driven by the issue of energy, which concerns all members in a distinct way (Wirminghaus 2012: 30), and was intended to resolve further issues of economic development, it was deemed as “mainly rhetorical” (Collins 2009: 265). Economic problems also contributed to more protectionism in the intraregional trade in the 1990s as the countries labored through the transition period (Metcalf 1997: 530). The problems of trade creation beyond the region are also often mentioned as a constraint on fruitful economic integration during this period: some of the newly independent countries (NIS) appeared to be landlocked (Golovnin 2008: 40) and without infrastructure that could foster cooperation with other border regions (Wirminghaus 2012: 33). Libman and Vinokurov (2010) also mention that pronounced economic links between Central Asian countries ceased to be an advantage by the end of 1990s.

During this period bilateral competition becomes an important factor working against success of multilateral attempts at regional integration. Russia, being expectedly the most active member of the regional network, signed 77 bilateral agreements on different issues with the other CIS countries in the period of 1992–2004 (Wirminghaus 2012: 32). Some of these bilateral agreements on trade and economic issues, in fact, institutionalized a free-trade area within the CIS irrespective of a corresponding (and never signed within the period) multilateral agreement (Zhukov and Reznikova 2006). Macfarlane (2004) adds that bilateral agreements were often imposed on Central Asian countries by Russia or the United States thus impeding effective regional integration.

Apart from bilateral competition, multilateral competition was also mentioned as a factor impeding regional integration in this period. The most cited example is Kyrgyzstan, which joined World Trade Organization (WTO) in 1998 and had to set up its import tariffs at a level close to zero that made it a transit country of cheap foreign goods entering other CIS countries (Zhukov and Reznikova 2006).

An important factor that seems to explain a lot in the processes of regional integration during this period is related to power politics. Russia, with its post-Soviet empire ambitions, pushed for integration projects trying to preserve its influence in the ex-USSR space (Vinokurov 2007: 37). This influenced the various CIS blocks in contradictory ways. On the positive side, some countries were attracted to Russia as they searched for protection from more powerful neighbors: Kazakhstan, Kyrgyzstan, and Tajikistan are reported to be suspicious of the local hegemon of the Central Asia—Uzbekistan. Regional integration attempts in Central Asia were seen as unstable until Uzbekistan was counterweighted by Russia within the EAEC (Allison 2008). Central Asian countries also prefer to see Russia in the regional security initiatives (like CST) to counterbalance another dominant player in the region—China (Wirminghaus 2012: 35). Yet another important player that plays an active part in the region of Central Asia is the United States. Its presence in the region is not considered very favorably by the Central Asian countries themselves, to say nothing of Russia. This also helps to explain Russia’s active involvement in the region (apart from empire ambitions and the issue of energy resources [Pomfret 2009: 54]). Apart from Russian dominance in the integration attempts within CIS in general, Kazakhstan strived in this period to support its claims to political and economic dominance in the Central Asia (Wirminghaus 2012: 35).

It is also important to take into account the specifics of political regimes in most post-Soviet countries forming CIS when explaining the patterns of regional integration in the second stage of deepening transition from 1993 to 2000s. Integration is often related in this period to the need to preserve regimes and to reinforce their legitimacy through what Allison (2008: 185) calls “virtual regionalism” and Libman (2011: 1334) terms as ...

Table of contents

• Cover
• Title
• Introduction
• 1  Post-Soviet Integration: Fictive and Derivative
• 2  Business Cycles Synchronization of Russia, Belarus, and Kazakhstan
• Appendix 1: Additional Information on the Customs Union Trade (2011–2012)
• Appendix 2: Data Sources
• Appendix 3: Integration, Fractional Integration, Cointegration of Real De-trended GDP
• Appendix 4: More Results on Business Cycles and Correlations Analysis (Graphic Representation)
• Appendix 5: Business Cycles Correlation: GDP, GDP Decomposition, and Growth Rates
• Appendix 6: VAR, Variance Decomposition, and Impulse-Response Analysis of Real GDP and GDP Decomposition
• Notes
• Bibliography
• Index