Would a Eurasian Economic Union replace the Union State?

The fate of the Belarus-Russia Union State continues exciting the Russian and Belarusian political classes. With the arrival of the integration project, the Customs Union as one Common Economic Space (CU-CES), should be transformed into the Eurasian Economic Union by 2015, the question of the future of Russian-Belarusian state becomes of particular importance.

The fate of the Belarus-Russia Union State continues exciting the Russian and Belarusian political classes. With the arrival of the integration project, the Customs Union as one Common Economic Space (CU-CES), should be transformed into the Eurasian Economic Union by 2015, the question of the future of Russian-Belarusian state becomes of particular importance.

The Belarus-Russia Union State occupies a unique place in the line of integration projects in the former Soviet Union, representing the only attempt at political integration among the CIS member states. In December 1999, the creation of a kind of public education with its own constitution (Constitutional Act) with executive, legislative and judicial powers, a single citizenship, armed forces and currency was declared.

Unfortunately, not everything has been achieved, but the acceptance of a solid benefits package can be considered as a positive result, equalizing the rights of the citizens of the two republics in obtaining medical care, access to jobs, etc. in the territory of the Union State. As part of the project, there are regional troups of the two countries combined with joint air missile defenses of Russia and Belarus, and joint military exercises, which is a factor of importance to usas regards the western direction. There are a number of union programs that provide substantial support for knowledge and science intensive industries in Belarus, increasing Union assets.

The Belarusian authorities are confident in the success of the Union State project. On May 31, 2012 Alexander Lukashenko upon meeting the Russian President Vladimir Putin on his arrival in Minsk on his first visit after his inauguration, said: "Today we can state that in the post-Soviet era, a more advanced integration association than the Union State does not exist. And millions of people feel the real impact of this... our developments within the Union State have become the basis for the formation of the Customs Union and Single Economic Space”.

During his visit to Minsk in May (2012), the Russian president did not publicly refer to the Union State. This is understandable: the project has not justified the hopes of the Russian leadership, and has only partially been realized. In reality, the Federal government has not reached the level of integration of the EU – it has no executive authority, whose decisions would be binding on the territory of Russia and Belarus, there is no proper coordination of economic policies, there is no single currency, etc. At the same time, the "price" of integration with Minsk for Russia is prohibitively high.

In the creation of CU-CES not the "achievements" of the Union State, but rather the errors made in stimulating Russian-Belarusian integration were taken into account. The problem is not only that the size of countries and their economic potential differ by two orders of magnitude, and the political regimes and economic systems are not the same, but the fact that the declared goal of creating the Union state is understood in different ways by both sides.

Slogans in exchange for resources

At the heart of the Belarusian proposals for integration with Russia lies the entirely practical task of ensuring the economic independence of the young republic, which will not exclude in perspective, policy decisions which will be profitable for the Belarusian leadership. But the main thing was to get unlimited access to Russian energy and the Russian market. Russian-Belarusian Economic Integration stopped at the customs zone stage, which was started in 1995. Moscow and Minsk have failed to agree on the formation of a supranational authority to manage the customs zone. In addition, they did not manage to unify customs duties. For this reason, as early as 1996, the Belarusian part of the Russian-Belarusian customs zone very quickly became a huge smuggling terminal.

At this stage the economic integration as part of the Union State formation was stopped, and the parties have not moved to deeper forms of integration, but Belarus has retained access to the Russian market, having protected its market with a large system of non-tariff restrictions.

Energy and the Union State

Oil and gas have always been at the heart of the Union agreements between Russia and Belarus . In economic terms, the Union State was basically created in order to ensure stable transit of Russian energy resources to EU markets. In addition to political integration the main economic goal of the Russian leadership was to ensure the stable transit of energy in exchange for energy subsidies. For its part, Belarus has always sought to mediate on the resale of Russian crude oil and oil products to European markets.

The format of the Union State was the political justification for the creation of a complex system of preferences and subsidies on energy from Russia, which in 2007 reached $ 7 billion a year. As part of these subsidies, for a second decade Belarus is receiving gas at the lowest price in Europe (on average 3 times cheaper than in Poland and 2-2.5 times cheaper in comparison with Ukraine). Belarusian offshore oil has functioned for almost ten years, importing Russian oil at the "union rate", and exporting oil products derived from it to the world. It is worth mentioning that Belarusian exports to European markets (from 51% to 59% of the total) consist entirely of petroleum products and potash (a natural Belarusian resource).

The constant energy support from Russia has assisted the deep structural reforms in the Belarusian economy, and in fact, contributed to the preservation of a post-Soviet economic model based on energy dependency. As a result, at the beginning of the XXI century, the Belarusian side believed that their main task in the integration process with Russia, was replacing the sequential process of economic integration with the escalation of subsidies from the Russian side.

The Russian leadership, in turn, tried to get the Union State project revived from its stage of stagnation. For this purpose, it employed both economic (since 2007 it has raised the prices of energy supplied to the Republic) as well as political leverage. Russia has sought to speed up economic reforms in the Republic to a single currency, the introduction of which is still relevant. However, the country did not manage to create a system, in which the need for a speedy political integration would stimulate economic integration (for example, the introduction of a single union currency), and vice versa.

Despite the formal preservation of union relations, the countries continued living their lives, their economic and political systems were becoming more and more different from each other every year. These processes were especially clearly manifested in the foreign policy which within the framework of the Union State never became a real union one.

Belarus pointedly did not support Russia during the Russo-Georgian war. In the days of fierce fighting for Tskhinvali, a week of Georgian cinema was held in Minsk. After 2008 there was an intolerable situation, when one part of the Union State recognized the independence of Abkhazia and South Ossetia, and another opened its borders to citizens of Georgia and granted them visa-free passage into the territory of Russia. Alexander Lukashenko promised to recognize the new Transcaucasian republics, but later retracted his words.

In 2009, Belarus, while remaining within the framework of the Union State, entered the European "Eastern Partnership" program. In 2009 and 2010, the Belarusian authorities organized a series of anti-Russian provocations in a European direction, demonstrating a desire to change its geo-strategic orientation from the Union State for the European Union.

Already by 2007 the Russian government, realizing that the integration project with Belarus had stalled, started gradually reducing financial and resource support to Belarus. This immediately led to severe economic crises in 2007 and 2011 in the Republic of Belarus. The crises have demonstrated that the Republic cannot exist without constant economic support from Russia, which led to the growth of subsidies.

Despite the increase in trade between the countries in January-December 2011 to 38607.6 million dollars, the negative foreign trade balance for Belarus was huge (almost 28%).

The Republic is still increasing imports of Russian energy (60-65% of all deliveries of goods to Belarus); petroleum products produced from Russian oil provided 44% of the export earnings of the Republic.

A New Chance

With the accession in 2010 of the Republic of Belarus into the Customs Union, and from January 1, 2012 into the common economic zone, Belarus has been given a second chance to take part in the new integration process, initiated by Russia. But for that Minsk had to sacrifice a part of the Union State - the Russian-Belarusian customs zone was dissolved into the Customs Union "troika" of Russia, Belarus and Kazakhstan. The Russian-Belarusian political integration, meaning the Union government itself, lost its economic component.

Errors made in establishing the Russian-Belarusian customs zone were taken into account when forming the Customs Union, but only partially. The Customs Union has a supranational authority (Customs Commission), a single customs code and uniform customs duties, but control of the Russian-Belarusian border has disappeared, and now the western customs border of Russia is actually provided by Belarusian border guards, with all the ensuing consequences.

Photo: BELTA
Eurasian Economic Community

Belarus has received huge financial and resource advances for its entry into the CU-CES totaling $ 8 billion: a loan of three billion dollars, and an unlimited access to Russian oil and the Russian-Kazakh market. However, the Republic is in no hurry to follow the CES Agreement, signed and ratified in December 2010 as the Belarusian leadership tries to keep its economic enclave within the framework of the CES, repeating the trajectory of the Union State.

With the advent of the CU-CES the Union State has become a negotiating platform for receiving new subsidies and preferences from the Kremlin. Given the complex political situation in Belarus, Russia, in preserving the Union State, in fact, takes responsibility in the eyes of the world and the Russian public, for the political repressions in that country. Even taking into account the importance of the military-strategic interests of Russia in the west, where in addition to Belarus, Russia has Kaliningrad; it is difficult to determine the balance of positive and negative aspects of such an unnatural union.

Of course, neither the Belarusian side, which is interested in preserving the special bilateral relations with Moscow, nor the Russian side, whichthanks to the Union State has a potential lever to influence Lukashenko, will not take the initiative to eliminate this strange union of states. However, in attracting Belarus to participate in the new project, it should be borne in mind that its interests in the integration process have not changed. The Republic of Belarus cannot exist without integration, but also can’t fully participate in it.

Whether the Union State will fit in with the structure of the Eurasian integration project, time will tell. As noted by the Secretary of the Union State Mr. G. Rapota, "whether it will be possible to save its [Union State] place in the integration model, will depend on the political will of the Heads of States and on us.”

At the same time the Union State is a kind of socio-political "bridge" between Russia and Belarus, while maintaining a sense of belonging and neighborliness. The accumulated potential of working together, which unfortunately, due to complex political and economic problems, could not always be realized, is sure to be in demand not only in the multilateral integration projects in the former Soviet Union, but also in bilateral relations.