Eurasia Will Not Unite session of the Supreme Eurasian Economic Council

It was in 1994 that Kazakhstan’s then-President Nursultan Nazarbayev, in a speech to Russian students at Moscow State University, first used the term “Eurasian Union” to suggest the creation of a regional trade bloc. He emphasized “the formation of a single economic space and the provision of a common defense policy.”

The comments came amid the catastrophic economic disintegration of formerly Soviet states in the 1990s. Between 1991 and 1993, there had been an 80 percent collapse in trade as new borders and currencies appeared overnight, breaking down supply chains that were previously integrated. 

Privatization had put the assets of state enterprises under the control of different national firms. Some went bankrupt entirely, abandoning machinery and property too impractical to sell off. In a now-independent Kyrgyzstan, the sole Soviet firm dedicated to making hay bale machines collapsed when it couldn’t gather the Estonian kroons necessary to purchase the specific compressors—only the new Baltic state manufactured them. Even if they could have, new transit fees, tariffs, and customs duties that had never been factored into the economic equation were now wreaking havoc all across the post-Soviet space.

Nazarbayev’s idea to reintegrate wasn’t exactly new; he and other Central Asian Soviet leaders had generally opposed the Soviet dissolution to begin with. Anticipating the disruptions that such a move would bring, the presidents of Russia, Kazakhstan, and Belarus signed the Belavezha Accords in 1991, creating the Commonwealth of Independent States (CIS). It was technically a free trade area including almost all of the old Soviet Union, although with the notable absence of all the Baltic states.

But its structure was intentionally loose, reflecting its goal of legitimizing the sovereignty of its members—the CIS was not intended to be a supranational economic community the way the USSR was. Resolutions were only binding for “interested parties,” rather than for the entire union, and Nazarbayev noted in his 1994 speech that of the 400 documents signed, almost all were already inactive. CIS members had failed to properly reorganize their trade relations and lacked an effective supranational court to adjudicate disputes and eliminate newfound sources of friction.

Nazarbayev’s Moscow speech was doubtless influenced by the much more institutionally effective European Union, founded the previous year. Where the CIS had failed, the EU seemed more successful. But he was not merely praising Western achievements. If the European Union grew, it would become necessary for the post-Soviet sphere to quickly establish a new institutional basis for their own diplomatic and economic relationships, or else risk being eclipsed by Europe. 

Though it is difficult to imagine today, in 2002 the Prime Minister of Italy Silvio Berlusconi was optimistic about integrating Russia into the EU, and early on in his tenure Putin even floated the idea of joining NATO, both in public and in private. But while the post-Soviet space enjoyed good relations with the West in those days, they also maintained very different political and business norms. Genuine integration would require deep structural changes, and Russia’s leaders would likely never have acceded to engaging in a horizontal partnership with other countries—they were accustomed to much more vertical relations with trade partners in which Russia acted as the superior. 

In light of the West’s tendency to couple economic integration with expectations of institutional reform toward liberal democracy, autocrats in the post-Soviet sphere sought to form their own alternative to the Western liberal order. At the same time Berlusconi dreamed of a trade union that stretched from Lisbon to Vladivostok, in 2001 Vladimir Putin was already determined that Russia would remain a peer of the EU rather than a member subject to its decisions:

“As a world power situated on two continents, Russia should retain its freedom to determine and implement its domestic and foreign policies, its status and advantages of a Euro-Asian state and the largest country [of this CIS], [and the] independence of its position and [its] activities at international organizations.”

By creating a space for mutually beneficial economic transactions without the mandate of a liberal, Western-style system, leaders like Putin and Nazarbayev also hoped to establish a multipolar political paradigm in the region’s favor. 

The dream of a Eurasian bloc is now an institutional reality. But it has not become a productive powerhouse. Russian geopolitics have complicated the trade alliance’s fundamentals, and the path to further integration is growing increasingly fraught.

A Troubled Start

In 1995, the year after Nazarbayev’s speech, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan signed preliminary agreements for a customs union. In 2000, the same group of countries formed the Eurasian Economic Community to expand cooperation and establish common markets.

However, Ukraine’s reluctance to join in favor of deeper EU integration, and the subsequent Orange Revolution in 2004, derailed the actual implementation of the “single economic space.” By 2007, a more modest coalition of Belarus, Kazakhstan, and Russia agreed to create a customs union, and in 2010 the union finally became reality. Deeper market integration began in 2012 with the establishment of the Eurasian Economic Space, and in 2014 the ratification of the Eurasian Economic Union (EAEU) superseded these agreements.

Even within the EAEU’s smaller group of countries, political leaders fought over the structure of its institutions. Outside Russia, politicians cast suspicion on Moscow’s political leverage in the union. In 2013 and 2014, Russian representatives stated their intention to model the EAEU’s governing body after that of the EU’s European Parliament. By adopting its system of degressive proportionality—a mixed system that allocates seats by population but still allows more seats for small members—Russia, with a population ten times greater than that of the second-most populous member, Kazakhstan, would be given unrivaled power. The move alarmed Kazakh parliamentarians, with one summing up the mood by declaring himself “categorically against… the transfer of law-making powers to a supranational body.”

Defense policy also proved a tricky area of cooperation. Somewhere along the way, negotiators quietly dropped Nazarbayev’s original call for defense integration from EAEU policy drafts. Ultimately, regional defense became the purview of an entirely separate treaty: the Collective Security Treaty Organization (CSTO), a military agreement between sovereign states without institutional heft of its own. 

The CSTO has enjoyed greater freedom of action, but has also shown to what degree formal commitments are constrained by national interests. At the invitation of the government of Kazakhstan, a Russian-led CSTO rapid response force went on to play a key role in ending the violence that erupted in Kazakhstan at the beginning of 2022. 

Russian intervention served as a lifejacket for Kazakhstan’s president Kassym-Jomart Tokayev and his regime. But in the case of Armenia two years earlier, CSTO membership did not translate into a useful security guarantee; the country lost territory to Azerbaijan even as Russian peacekeepers looked on, leading to widespread bitterness.

On May 27 2022, after two years of delay on account of the pandemic, the first-ever Eurasian Economic Forum was held in the Kyrgyz capital of Bishkek. The most important meeting was that of the Supreme Council, the top-level EAEU body composed of the heads of state of member countries. The only two leaders physically present were Kassym-Jomart Tokayev, the president of Kazakhstan, and his Kyrgyz host President Japarov. Everyone else phoned in.

The host president enthusiastically promoted civilizational visions about Eurasia’s future:

“There is a civilizational shift from west to east. The center of economic attraction is moving to the Asian continent. If a window closes in Europe, a window will open in Asia! We are witnessing an unprecedented change in which our Union must take its dominant position.”

Offhandedly, Vladimir Putin seemed to concur: “It would be no exaggeration to say that Greater Eurasia is a big civilisational project.” But despite this nominal agreement, most of Putin’s language during the forum centered around historical continuity and economic harmonization, rather than Greater Eurasian megaprojects. He highlighted the fact that the material basis for economic integration was already present. EAEU member states had “a very good base that we inherited from the old days, we only need to support it and to invest resources there.” 

His focus was narrow because it had to be. In the post-Soviet sphere, trade opportunities are an area of authentic mutual interest in a way that defense and political integration are often not. The European Union began with an economic community, but also had leaders willing to make sacrifices to build common institutions that deepened integration. But a look at the governance structure of the EAEU shows that anything other than skin-deep integration isn’t likely.

Governing Eurasia

The EAEU’s foundational treaty called for the creation of three primary governing bodies: in addition to the Supreme Council (SC), there is the Intergovernmental Council (IC), and the Eurasian Economic Commission (EEC). The EEC itself is composed of a Council and Collegium. As a counterpart to the heads of state, the IC is governed by the respective heads of government. Both the SC and IC are governed by consensus and decisions must be reached unanimously; all members have equal voting rights. 

The EEC Council consists of the deputy heads of government and is also governed by consensus. The Court of the EAEU, comprised of two judges from each member state, presides over treaty disputes; being unable to override prior Union laws or provide preliminary rulings at the request of member states, it is judicially weaker than the EU’s courts.

Like the court, the EEC Collegium is unique insofar as it is a body made up of professional appointees that are distinct from the member states’ governments. It is the only permanent body and unlike the Supreme Council it decides through qualified majority. However, the body avoids politically sensitive decisions, instead deferring them to the EEC Council, and is highly vulnerable to the appeals of member states.

Even though the EAEU rests its legitimacy on being a supranational entity, critical decision-making independent of the body’s higher councils—which are themselves controlled by heads of state—is impossible. The EEC is formally empowered to dictate policy regarding tariffs, customs regulation, and external trade measures, but in practice the constant deferral of important or contentious matters to bilateral negotiations between member governments favors the sovereignty of its members over the union’s supranational authority. Even a revision of the original 2010 customs agreement, begun in 2011, was not completed until 2016. In the final stretch, Belarus and Kyrgyzstan seized upon the opportunity to demand further economic concessions in return for their cooperation.

In theory, the union’s structure formally ensures that Moscow is bound by the same rules as any other member. But the actual incentives for joining the body, and the ex-Soviet bloc’s predilection for weak institutions and informal arrangements by individual power-brokers, make Russia’s bilateral relationships with member states important for EAEU politics overall. With the Commission itself located in Moscow, Russia has full access to the EEC bureaucratic apparatus that implements the bloc’s decisions into workable policy. It is a physical reminder that the EAEU follows a “wheel and spoke” model with Russia at its center.

But Russia is not the most predictable of centers. Its behavior towards individual member states often runs counter to the stated principles of why the EAEU was initiated in the first place. It is prone to hasty unilateral decisions that are implemented without notice, often in response to its own foreign policy concerns. For example, following the 2014 invasion of Crimea, the Russians unilaterally banned the import of various EU goods.

When Russia faced sanctions again at the start of the 2022 invasion of Ukraine, it imposed a ban on the export of grain and other staples without warning, due to its inward-facing concerns about domestic food security. Moscow reversed the ban following authorization by the Russian Ministry of Agriculture, but the policy only applies to EAEU members and comes with caveats: restrictions on the volume of certain goods for export remain. Presumably, so too will the resentment of Russia’s Central Asian partners.

Incidents like the grain ban highlight the weakness of the EAEU’s supposedly supranational institutions. While leading EU members like Germany and France were stringent about observing the various European treaties, Russia often makes decisions unilaterally. The grain dispute became another example of the Kremlin’s lack of concern for its own agreements, with results that undermined both the Kazakh and Kyrgyz governments’ legitimacy as the guarantors of national stability. Friction between EAEU members aside from Russia isn’t unheard of either, such as the diplomatic spat in 2019 that saw the Kazakh and Kyrgyz governments close their borders to one another. 

With the precipitous dip in the price of crude between 2014 and 2015, and the first round of Western sanctions against Russia, the EAEU was born during a time of contraction. Upon its creation, the Russian Federation contributed 84 percent of the union’s total GDP. Despite serious reductions in GDP after the 2014 sanctions, Russia remains its economic lynchpin. In fact, its proportion of the bloc’s total GDP actually increased to around 86.4 percent by 2021. 

Intra-union Trade and Investment

Although Russia has reaped the greatest absolute gains from the EAEU, maintaining a positive trade deficit with all members throughout the 2015-2020 period, this trade is only a drop in the bucket as a proportion of its GDP. Despite being an increase on the previous year, in 2015 the trade surplus Russia accrued was only approximately equivalent to 1.07 percent of its GDP, hardly a genuine alternative to lucrative Western markets. In the same year, Belarus and Kazakhstan both ran trade deficits with the EAEU of around -11 percent and -3.25 percent as a proportion of their total GDP. 

The region still lives under the Soviet legacy of fiscal dependence on the export of low-value-added raw materials and heavy industry. It shows most in the difference between the goods members trade with one another and the ones they export elsewhere. In 2015, more than 65 percent of exports from the region to third countries were mineral products, compared to only 33 percent for intra-union exports to their neighbors. In the same year, only 7.5 percent of exports to third countries were heavy machinery or foodstuffs, whereas these items accounted for 32 percent of mutual EAEU trade. This is likely because the manufactured goods struggle to compete in the international market, while agricultural standards complicate the trade of food outside of the union.

The region saw the modest benefits play out after Russia’s annexation of Crimea and the crude oil drop in 2014. Over the next year, the total mutual foreign direct investment (FDI) stock of EAEU members increased from $17.19 to $18.07 billion, a 5.11 percent increase, while the proportion of intra-regional FDI as compared to total regional FDI increased by 12.5 percent. 

But in absolute terms, every single country except Kyrgyzstan then documented a net reduction in FDI in 2015. From the beginning of 2015 to the end of 2016, every EAEU member with the exception of Kyrgyzstan experienced the lowest GDP growth of the decade, and every member experienced a relative decline in the total GDP over the same period.

Despite this relative low, Russia and Kazakhstan both experienced a concurrent year-on-year increase in total FDI in absolute terms. The EAEU increased its proportional contribution to their FDI as well.

This observed integration is important when the largest economic and political member is a constant target of Western sanctions. It’s a position that impacts Russia’s neighbors, too. FDI in proportion to gross fixed capital formation has fallen consistently in the region since 2017, representing decreased global investment even as intra-union investment increases. 

This disproportionately impacts Central Asian countries like Kazakhstan and Kyrgyzstan, as they traditionally rely on foreign investment for over 50 percent of real investments. In contrast, both Belarus and Russia traditionally have below-average levels of foreign investment for economies in their income category, reflecting their “fortress” approach to economic sovereignty. Both countries are highly aware that their geopolitical decisions have economic consequences and have leaders intent on insulating themselves from them. 

The question for the other EAEU members will be to what degree reduced trade tariffs are worth enduring the economic priorities of Moscow and Minsk, as episodes like Russia’s 2022 grain ban have shown. Moscow’s perennial willingness to break the rules and resort to protectionism when it suits them undermines the union’s ability to act coherently and in a unified way. Meanwhile, the EAEU is still structurally reliant on Western investment, in particular from the UK, the Netherlands, and Germany. The marginal increases in mutual EAEU trade and FDI reflect slow integration that has not yet led to sustained growth.

Recently, however, the EAEU achieved a milestone in its reorientation toward the Asian-Pacific region, part of Nazarbayev’s original plan to wean the post-Soviet bloc off of Western investment. In the first six months of 2020, trade volumes with two key EAEU partner regions became virtually equivalent for the first time in its history: 37.7 percent for the EU and 37.02 percent for the Asian Pacific Economic Cooperation. Two years prior, the gap exceeded 14 percent in favor of the EU.

Potentially, the implementation of a set of common EAEU standards could give its members bargaining power in trade with the Asian Pacific as this eastward shift continues. EAEU initiatives like the Greater Eurasian Partnership ease persistent supply chain issues and provide a basis for integration with China’s Belt and Road Initiative, giving Russia a say in a trade network that otherwise bypasses Russia itself.

But the most important accomplishment of the EAEU’s first seven years was the elimination of non-tariff trade barriers, reducing “sand in the wheel” inefficiencies. The efficiency gains are estimated to have contributed between 10 to 30 percent of members’ total export values at the time of the EAEU’s ratification. However, the limited volume of mutual investment, trade, and overall economic activity, as well as the continued absence and diminishing likelihood of the planned common markets, mean that the EAEU project falls short of the soaring rhetoric of a “Eurasian civilization.” Even if integration and mutual investment have increased, it has not proved to be a powerful engine for growth.

Troubled Integration

The recent sanctions on Russia have changed an important element of the EAEU’s customs settlement: the dollar as a unified metric. The EAEU has established a new system wherein customs duties for Belarus and Russia are now calculated via rubles, while the other members are still on the dollar system. Maxim Reshetnikov, Russia’s Economic Development Minister, made a statement that the EAEU has “agreed on a phased transition in customs settlements to national currencies, with the majority of settlements to be rendered in rubles.” Having already brushed up against the difficulties of a consistent monetary valuation system, the transition could aggravate tensions around further integration in the union. Russia appears poised to seize the opportunity to establish a “single ruble zone,” though such a move would be contentious. 

By the summer of 2021, two-thirds of the transactions between Russia and other EAEU members were being done in rubles. But unstable exchange rates, coupled with already-low wages across EAEU member states like Kyrgyzstan, are exacerbating COVID-19 fallout and leaving Russia with a worker shortage as remittances from foreign workers lose value. To make matters worse, recent sanctions against Russia have been leaving migrant workers unemployed, denying their home countries an essential capital stream. 

Previous plans for large-scale energy and financial market integration now look increasingly unlikely as sanctions will likely incentivize clearer boundaries, especially for economies dependent on foreign investment. The notable lack of coordination against this unraveling is not a bug, but rather a feature; the EAEU cannot be effectively governed by its own rules while its de facto goal remains the continuity of domestic rule by political elites and the preservation of their interests, and that of Russian elites especially.

As the full force of Western sanctions becomes clearer and Russia’s war more tiresome, all that will be left of the EAEU is a collection of strained bilateral relations and liabilities. Its former pretensions of becoming a genuine challenge to U.S. hegemony and establishing a multipolar order have been quickly replaced by more fundamental ones as Russia’s neighbors weigh how best to hedge the risk of doing business in the face of Moscow’s unilateral decisions.

But while the EAEU is far from achieving the civilizational goals of its founders, its more modest achievements will likely ensure its continued existence. The expected outcomes of an increased regional presence in the economies of Kazakhstan, Armenia, and Kyrgyzstan are enhanced levels of human development, cooperation, and the potential for preferred access to a substantial energy supply of both oil and gas. 

The first decade of the Eurasian Economic Union took place amid a stagnant and politically turbulent period for the Russian economy, with an intensified war and sanctions regime joining the pandemic’s disruptions. The question for the spokes of the union’s wheel is how to minimize the damage of what will certainly be a bumpy ride. Despite the rhetoric of a civilizational bloc, or even of a mutual partnership between member states, Russia remains the center of the union’s orbit. 

For now, the EAEU guarantees access to the regional economy. But with only modest gains in customs efficiency, labor market expansion, and potential for the reduction in non-tariff barriers, the EAEU does little to transcend the sum of its parts. 

Julien Segre studies Symbolic Systems and Russian Studies at Stanford University.