Eurasian Economic Union gains momentum

Eurasian Economic Union gains momentum

As the Eurasian Economic Union continues to gain momentum, interested parties are lining up and critics are speaking out.

Despite the continuing unrest in Eastern Ukraine, economic integration processes are continuing within the former Soviet Union and the region’s near abroad. Following a meeting between Russia’s Economic Development Minister and Turkey’s Economic Minister, Turkey indicated it is interested in establishing a free trade zone with the Eurasian Economic Union (EEU), a trade bloc to be launched in 2015 that will encompass Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

Turkey could not join the EEU, as it has been party to a free trade agreement with the European Union since 1996. Ankara had previously expressed interest in joining the EEU last fall, which led some to speculate that it was intended as a sign of displeasure with the European Union’s continuing negotiations with the United States for the establishment of a trans-Atlantic free trade agreement.

Trade volume between Russia and Turkey reached $32 billion in 2013. Turkey was also quick to take initiative; it offered to expand foodstuff exports to Russia in order to benefit from Russia’s ban on European food imports. But a number of issues remain unresolved for Turkey’s relations with the EEU, including the fact that the trade bloc includes Armenia, but Ankara’s interest in the bloc is a sign that the entity is gaining interest across Eurasia.

Turkey is not the only country which has expressed interest in establishing a free trade agreement or free trade zone with the Eurasian Economic Union. Israel established a working group to study the feasibility of such a move last fall, joining Vietnam, India and New Zealand, which have also expressed interest forming an FTA with the EEU. In April, Syria’s state-run news agency stated that the country plans to join the trade bloc.

Meanwhile, the EEU has also attracted the attention of the Islamic republic of Iran. President Hasan Rouhani conducted a trip recently through post-Soviet Central Asia as part of a bid to end his country’s isolation and win support for an end to sanctions. His tour included a visit to Kazakhstan, where he discussed the potential for Iran to join the Eurasian Union with the country’s president, Nursultan Nazarbaev.

Russia has worked to end Tehran’s international isolation by importing half a million barrels of Iranian oil every day in exchange for Russian goods. Iran has also received observer status in the Shanghai Cooperation Organization, a security bloc encompassing Russia, China and post-Soviet Central Asia. Iran has a number of investment projects in the fields of energy and infrastructure in neighboring post-Soviet Tajikistan, with which it shares close linguistic ties.

At the same time, however, dissatisfaction among Belarus and Kazakhstan’s leadership with regard to the trade bloc continues to surface. Belarus’s President Alexander Lukashenka praised Moldova’s decision to pursue a path toward European integration to modernize its economy and attacked moves by Moscow to raise taxes on the extraction of natural resources. He claimed the move went against prior agreements and would result in a loss of $1 billion from Minsk’s budget that it would have received from re-exporting Russian oil outside of the Customs Union. The criticism by Lukashenka led Moscow to agree that Belarus could keep all the annual export duties for Russian oil processed in Belarus, a sum that was $3.3 billion in 2013.

The Eurasian Economic Commission also announced last week that trade volume between the Customs Union member states has declined by 10.7 percent since the beginning of the year. Many in Kazakhstan blame Western sanctions against Russia for the decline in trade volume between their two states. Europe accounts for nearly half of the foreign direct investment in Kazakhstan, making the economy highly sensitive to European and American companies which are increasingly scaling back their operations in Russia.

Categories: Europe, Politics

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Luke Rodeheffer

Luke Rodeheffer is a cyberthreat researcher at Flashpoint in New York City. He holds an MA from Stanford University, where he was a FLAS Fellow for Turkish. Luke was previously a Fulbright Fellow in Ukraine and a research assistant at Koç University in Istanbul.

You can follow him on Twitter @LukeRodeheffer