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Putin Sets Sights on Eurasian Economic Union

Neil Buckley
Tuesday, 16 Aug 2011 | 8:20 PM ET

Twenty years after the Soviet Union collapsed, Vladimir Putin, the Russian prime minister, may not, as is sometimes alleged, be trying to recreate it. But he is pursuing a different project – to build a “quasi-European Union” out of former Soviet states.

Russia
Frans Lemmens | The Image Bank | Getty Images
Russia

A customs union he launched a year ago between Russia, Belarus and Kazakhstan has already removed tariffs and customs controls along the three states’ internal borders.

Come January this is due to expand into a “common economic space”, ensuring free movement of goods, services and capital across a single market of 165m people – 60 per cent of the former Soviet population.

At a Moscow summit this month, prime ministers of the three states set an even more ambitious target – turning the grouping into a “Eurasian economic union” by 2013. There is even talk, down the line, of a common currency.

“This is truly an event of great interstate and geopolitical significance,” Mr Putin said after the summit. “For the first time since the collapse of the Soviet Union, the first real step has been made towards restoring natural economic and trade ties in the post-Soviet space.”

That may be hyperbole. But unlike earlier attempts at reintegrating former Soviet states, this one is making progress.

Mr Putin also suggested that once the common economic space is established, its members should start talks on a free-trade agreement between the bloc and the EU. Given Russia has spent 18 years negotiating – so far unsuccessfully – membership of the World Trade Organisation, such a grand agreement seems a distant prospect. Yet, if ever achieved, it would fulfil a vision Mr Putin set out in Germany last November of a “harmonised community of economies from Lisbon to Vladivostok”.

Rebuilding ties between former Soviet states has long been Mr Putin’s goal. In 2000 he signed an agreement with half a dozen countries to create the Eurasian Economic Community, or EurAsEc. That, however, has remained largely a talking shop.

Since 2009, he has pursued deeper integration with two EurAsEc members towards the current customs union. Nursultan Nazarbayev, Kazakhstan’s authoritarian president, embraced the plan. Belarus, its economy heavily dependent on Russia’s, was corralled into it with energy-related carrots and sticks.

“The vision has become more and more of creating a European Union in the space of the former Soviet Union,” says Lilit Gevorgyan, analyst at the consultancy IHS Global Insight.

The customs union has adopted chunks of the acquis communautaire, the EU’s body of law, says a senior Russian official. Copying an existing model saves work, but it could, in theory, one day ease the task of creating a free-trade zone with the EU.

The deepening customs union has the typical advantages of stimulating business development by removing trade barriers. It could also help restore horizontal links between industries and enterprises severed when the USSR collapsed.

Moreover, by tying Kazakhstan – former Soviet central Asia’s most successful economy – to Russia, it counters growing Chinese influence in the region. Neighbouring Kyrgyzstan and Tajikistan have also expressed interest in joining.

Intriguingly, the union might succeed where other attempts have failed and force Russia to improve its business climate. Senior officials in Astana, the Kazakh capital, talk of enticing Russian companies to re-register in Kazakhstan which, they say, offers a better environment.

On Russia’s European flank, the customs union provides both an incentive and a mechanism for Russia to support Belarus – mired in a financial crisis that has forced a sharp devaluation – and prevent public unrest that could see Minsk shift towards the EU. That is despite Mr Putin’s personal dislike of Belarus president Alexander Lukashenko.

“Russia will keep Belarus on a drip,” suggests Ms Gevorgyan. “They will give it enough, through subsidised energy supplies, to keep the economy afloat, but not enough for Lukashenko to feel emboldened to challenge Russia.”

People who know him say Mr Putin would dearly love to “complete” the union by bringing in Russia’s big Slavic neighbour, Ukraine. Adding its 45 million people would extend the bloc to three-quarters of the former Soviet population.

Whether Ukraine joins or not, Mr Putin has cleverly taken advantage of the west’s preoccupation with its debt problems, says Nikolai Petrov of the Moscow Carnegie Centre think-tank.

“When Russia is relatively in a better position than many euro countries, it’s a good time to promote its integration ideas,” he says.

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