Eurasian Economic Union jeopardised by trade war

Eurasian Economic Union jeopardised by trade war

Fears of Russia’s declining ruble led Belarus’ government to impose a 30 percent commission on the purchase of foreign currency on December 19th. It comes just weeks before both former Soviet states are set to upgrade the current customs union into the Eurasian Economic Union (EEU).

Alexander Lukashenka, the President of Belarus issued a directive on December 18th requiring trade with Russia to be conducted with US dollars and euros. It was a major blow to plans in the Russian Duma supported by Russian business interests to develop a common payment system across the Eurasian Economic Union (EEU).

The system would encourage payments in the national currencies of member-states for intra-EEU transactions and explicitly moved away from the use of the US and European currencies. It could even pave the way for the introduction of a common currency.

On December 15th, Belarus’ sanitary inspection service banned imports of Russian noodles and coffee, alleging health safety concerns. At the beginning of December, Russia’s own sanitary service accused Belarus of exporting products into Russia that are banned within the Russian Federation, particularly foodstuffs from the European Union.

Following Moscow’s decision to ban EU food imports, a number of schemes have rapidly developed to circumvent the ban via Belarus: European foodstuffs were continuing into Russia with forged Belarusian documents concerning their country of origin or with Kazakhstan as the listed country of destination.

In November alone, Russia claimed nearly 20 tons of food with forged documents had been discovered and announced that additional checks would be performed at the Russian border and banning imports from dozens of Belarusian enterprises involved in food export to Russia.

Belarus responded by introducing customs controls for products arriving from Russia, with President Lukashenka warning that Russia’s actions “threatened to dismantle all of the agreements on the Customs Union.” The massive inflow of contraband foodstuffs from Europe into Russia seems almost inevitable given that Belarus’s food imports from Europe have increased by 80 percent since the Moscow announced the import ban in August. Agreements within the Customs Union and EEU that the member-states will adopt common trade policies appear ever further from implementation.

The strain in relations between EEU members is not limited to Belarus and Russia, either. Relations between Kazakhstan and its northern neighbor have reached the lowest point since the end of the Soviet Union following comments from Vladimir Putin that disputed ethnic Kazakhs ever had a state before the end of the Soviet Union. Kazakhstan’s President Nursultan Nazarbayev followed with a sharply worded recent statement reminding Kazakhs of their ancestors’ sacrifices in defense of the Central Asian state.

The tenge, Kazakhstan’s currency, devalued by 19% vis-à-vis the dollar in 2014, with another devaluation increasingly likely as the ruble continues to fluctuate.

Moscow has marketed the Eurasian Economic Union as a trade bloc that would make the post-Soviet space more attractive to foreign investment and create a single market linking Europe with East Asia. Instead, membership in the EEU is becoming a liability for Russia’s neighbors.

About Author

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