Year XL, 1998, Number 2 - Page 169

 

 

THE REGIONALISATION OF POST-SOVIET SPACE: POLITICAL AND ECONOMIC ASPECTS *
 
 
There is a tendency, in the modern world, towards the formation of regional alliances among neighbouring states, most of which, like the European Union or associations in the Asia-Pacific region, have both a political, including military-political, and an economic bias.
Regional alienation and inter-state integration grow more spectacular in periods of world economic and political instability and when the prospects for improvement look bleak.
The break-up of the military-political and economic blocs of socialist countries — the Warsaw Treaty Pact and the Council for Mutual Economic Cooperation (Comecon) — in the 1990s gave rise, in the post-socialist space, to a powerful impetus towards and the formation of new entities. With the collapse of the USSR and the emergence of 15 newly-independent states, the process gained momentum. The disintegration of the USSR, a far more closely knit economic bloc than the Comecon or the EU, with all the republics developing as parts of single a entity, proved to be a more controversial and traumatic upheaval than the collapse of the USSR-dominated Comecon. Besides, the republics of the Soviet Union lacked sovereignty, unlike the Central and East European states, which had each retained an independent status within the Comecon.
The process of political and economic change in the former socialist sphere, including the USSR, began with institutional dissolution and is now moving towards the formation of new entities. Regionalisation of the post-Soviet space is therefore an intermediate an inevitable passage in this restructuring of the entire post-socialist space. It can be also viewed as a component of the process of world integration, in which Russia and other former Soviet republics are now involved.
When the USSR ceased its existence in December 1991, 12 former Soviet republics formed the Commonwealth of Independent States (CIS), which, according to an agreement stipulated in 1993, was subsequently to evolve into a Russia-led economic union. Meanwhile the Baltic countries — Estonia, Latvia and Lithuania — merged in September 1993 into the Baltic Union, which aspired to become part of the leading European structures.
Our studies have led to the conclusion that the differences between the former Soviet republics (both geopolitical and in their foreign economic policies) hamper their comprehensive integration. The deepening of these contradictions over the period 1992-1997 prompt a pessimistic forecast for the foreseeable future: the 12-member Commonwealth is unlikely to grow into a military, political or economic union centred on Russia (following the EU pattern). Regionalism in Russia is taking root.
Of the 15 former Soviet republics, ten have united into regional groups, with Russia, Byelorussia, Kazakhstan and Kirghizia joining simultaneously two regional alliances and Estonia, Latvia, Lithuania, Uzbekistan, the Ukraine and Moldavia being members of a single association. Five states, Armenia, Azerbaijan, Georgia, Turkmenistan and Tajikistan have so far withheld from joining any alliance.
By the end of 1996, five regional groups of USSR heirs had been formed: 1) the Union of Two, or the Treaty of Two, with Russia and Byelorussia; 2) the Customs Union of Russia, Byelorussia, Kazakhstan and Kirghizia, also called the Euroasian Union, the Union of Four or the Treaty of Four; 3) the Central Asian Economic Union, also known as the Union of Three, embracing Kazakhstan, Uzbekistan and Kirghizia as well as Russia and Tajikistan as observers; 4) the Baltic Union (Estonia, Latvia and Lithuania); 5) the Ukrainian-Moldavian Union.
There has also been much talk of establishing a Caucasian economic bloc (Armenia, Georgia and Azerbaijan).
These regional groups fall into two categories: those whose members, in the absence of a clear leader, carry equal weight, and those which have a powerful “nucleus”. The former category includes all the regional alliances which do not include Russia (the Baltic Union, the Union of Three, the embryonic Ukrainian-Moldovian Union). The second category embraces what might be termed Russia-led unions — the union of Russia and Byelorussia and the Customs Union of Four.
The communities currently in existence are either free trade zones or customs associations, and represent the initial stages of integration schemes. The objectives declared in their constituent documents — a common market and a monetary union — are unlikely to be attained by most of the groups.
There are different views on the current tendency towards the formation of regional groups within the CIS, a tendency which we feel may be explained by the absence of a consistent and transparent integration policy on the part of Russia. Having proclaimed a desire to promote integration and the formation of an economic union of the 12 states, Russia has so far failed to become an attractive economic and political partner for these countries.
Another reason may be the effectiveness of the protectionist policies implemented by smaller CIS countries in order to safeguard domestic producers: they have established Russia-free regional blocs in order to make up, at least partially, for the loss of the Russian market. There is also the awareness that if Russia opts for a strategy of autonomous development, the aggregate potential of regional groups will be able to offer more powerful resistance to Russia’s attempts to subordinate the development of CIS members to its interests.
One main obstacle to the integration of the CIS states, a factor which, at the same time, favours regionalisation is the disaccord between the member states and their leaders, arising from objective clashes of economic interests as well as political leaders’ personal ambitions. “Euroenthusiasts” seeking a common Europe and “Eurosceptics” fearing any form of unification seem to be mirrored in the context of the CIS, by Uniophiles and Uniophobes. The former, which can imagine no alliance without Russia, are Byelorussia, Kazakhstan, Kirghizia and Tajikistan, while the latter, which oppose an economic and political union of all CIS members with the further development into a confederation of Euroasian republics and the introduction of a single currency, include the Ukraine, Uzbekistan, Turkmenia, Azerbaijan and Georgia. Meanwhile, the position of Armenia and Moldavia is not clear; they do not make public statements rejecting the establishment of closer unions to replace the CIS, but still tend to establish bilateral contacts, with Russia as well as with other states.
When examining the political and economic factors underlying the regionalisation of the post-Soviet space, one should not underestimate the importance of the Western countries’ resistance to the trend for greater levels of integration within the CIS. Although they admit publicly that the former Soviet republics represent an area of vital interest to Russia, many Western politicians and strategists disfavour the growth of Russian influence in this area and exploit contradictions existing within the Commonwealth, especially between Ukraine and Russia. Nor should we ignore the fact that a multitude of Western companies have, in the last five years, penetrated and become firmly established on the markets of former Soviet republics and are not inclined to relinquish their positions, especially in the raw material sectors of Kazakhstan, Uzbekistan, Turkmenistan and Azerbaijan.
In view of all the major obstacles in the path of rapprochement on a multilateral basis, CIS members are opting for regional blocs with a restricted number of participants (2 to 4. See the table).
 
***
 
Let us now examine the objectives and mechanisms of functioning of these main alliances.
1. The Customs Union of Four, incorporating Russia, Byelorussia, Kazakhstan and Kirghizia, is often seen as a nucleus of the future economic union of CIS members. Established in January 1995, it has gone through several stages of evolution, acquiring its present form in the spring of 1996 when Kirghizia joined the Union of Three (see table). The signing of the last treaty opened up wider prospects than are suggested by its denomination as a customs union.
The treaty is open to all CIS member states wishing to enter into common customs space with Russia. The inter-state structures of the Customs Union — the Inter-State Council, the Inter-Parliamentary Committee and the Integration Committee — emulate the coordinating structures of the CIS. The latter follows the pattern of the Inter-State Economic Committee in the CIS and is made up of government members from the four states. This body must ensure that all parties to the Customs Union respect the relevant economic agreement.
In accordance with the treaty establishing the Customs Union, the territories of member countries are, from the moment it comes into force, regarded as a single customs area. Which means that in the future all the tariff and non-tariff restrictions on the movement of commodities manufactured in the countries of the Four should be lifted. A single set of customs rules should be applied with regard to the Union’s external perimeter (the borders with other countries) so as to ensure the implementation of a single export-import policy in trade relations with third countries. By the autumn of 1996, all the export-import duties within the territory of the Four had been cancelled.
The Customs Union of CIS members, few as its members are, has injected fresh impetus into trade relations both among its members and between the Union and other CIS members; for Russia this has meant increased imports. Even during the first stage of the formation of the Customs Union, the general volume of trade recorded by Russia, Byelorussia and Kazakhstan increased 1.4 times (the Russian-Byelorussian share 1.7 times and Russian-Kazakh share by 15 per cent).
Thus, the simplified customs procedures on the borders with neighbouring states, the elimination of the so-called red-tape surrounding customs controls, as well as reduced export and import costs have for the Customs Union’s member states promoted and raised the competitiveness of their goods on the internal and on neighbouring markets. The benefits of more lively mutual trade have been felt by all the members of the Union.
However, the Union is plagued by problems as well. The prevailing ones concern the member countries’ differing attitudes toward third countries, the elaboration of a single tariff system protecting the Customs Union on its external perimeter as well as the provision of economic guarantees for each of its members. The latter problem is particularly acute, especially bearing in mind the limited nature of the Union’s territory and the fragility of its borders with neighbouring CIS members.
The Customs Union functions according to stated principles: uniform economic methods of managing external affairs and identical trade arrangements with regard to third countries. But uniformity of management methods and unanimity of foreign trade policy are not easy targets to achieve: the four countries differ from one another structurally, the reforms are not equally advanced in all of them and their dependence on foreign relations also varies. These are the problems underlying the serious contradictions which have emerged during attempts to coordinate foreign economic policies, policies which have resulted in damage inevitably being inflicted upon some members by the adoption of certain measures. The examples of this are numerous, and in an attempt to illustrate just how premature the move to create a customs union (instead of beginning with a free trade zone) was, we will cite only the most telling ones.
In the second year of the Union’s existence, first one, then another member modified, unilaterally, the table of duties, especially, import duties protecting the domestic market. As we have already indicated, the rate system operated by the Four virtually mirrors the Russian one and therefore, in foreign economic policy toward third countries, reflects Russia’s interests. Herein lies the main source of contradictions.
In April 1996, Kazakhstan announced a reduction of import duties on a wide assortment of goods. While improving its relations with the West, this move generated friction between the country and its Union partners. With rates lowered by 2-40 per cent, the reform applied to imports of furniture, industrial and agricultural machinery and automobiles, in other words, those areas of trade which Russia seeks to protect against higher quality, lower cost imports. An obvious imbalance in the industrial structures of Russia and Kazakhstan emerges here: the Russian automobile and agricultural machinery industries are based on giant works designed to cater for the needs of the internal market and whose products are unable to compete with imported analogues. It is quite natural that Russia should protect its national companies, through tariff policies as well as by other means. Kazakhstan, on the other hand, does not manufacture automobiles and farm machinery and is therefore interested in increasing its importation of these goods.
Byelorussia also has a different economic structure from Russia and its raw materials are scarcer, yet under the agreement the republic should apply the same customs duties as Russia on goods imported from third countries. The adoption of the Russian table of import duties in Byelorussia provoked an upsurge in import prices and higher production costs in some areas of light industry. For instance, the republic’s clothing factories are compelled to pay high duties on natural fabrics which are not produced domestically with finished goods becoming more expensive and thus less competitive as a result.
The examples cited show that much coordination and unification still has to be done before the Customs Union can be considered beneficial to all sides and before the customs and tax barriers can be said to protect, effectively, the Commonwealth market. Russia has so far incurred financial losses.
2. The Union of Russia and Byelorussia is another association involving Russia. Its nature, in substance rather than in declared intentions, is far less clear than that of the four-party Customs Union.
The Treaty of Two implied a greater level of integration than that which is provided for by the Customs Union which incorporates both Russia and Byelorussia. Close scrutiny of the constituent documents and of the way in which the bilateral agreements were implemented in the first year following the signing of the Treaty (April 1996-August 1997) reveals that the member states have achieved little more than preferential trade with each other. They have set up new inter-state administrative and coordinating bodies: the Supreme Council of the Union (headed by the presidents of the two countries), the Executive Committee and the Parliamentary Assembly. This organisation is reminiscent of the three member structure of CIS inter-state bodies, the only difference being that the Executive Council of the Union is vested with clear-cut supranational competences. Plans were made to set up a special fund for joint Russian-Byelorussian projects. But our interviews with Russian government experts fail to confirm that these intentions have ever been realised, and most experts affirm that the functions of the new bodies involve little more than coordination.
For the time being the articles contained in the Treaty of Two can be seen only as declarations of intent which necessitate extensive additional dialogue. While the message they convey points to a desire to pursue a single economic policy (itself a feature of highly-integrated economies and of an economic union), in practice the ambitions embodied the Treaty have proved to be too lofty, as the actual economic conditions in Russia and Byelorussia preclude the possibility of rendering concrete most of the provisions contained within it.
It is too early to talk of real progress having been made on the way towards Russian-Byelorussian economic integration — there is no evidence that any of the provisions contained within the Treaty have actually been implemented. Byelorussia appears at the present stage to be politically well placed for close forms of cooperation with Russia, and this is largely due to a subjective factor: President Alexander Lukashenko’s personal commitment is unification. There are, however, in both countries many who oppose the current special relations between them and there is a chance that possible power reshuffles, above all the removal of Lukashenko from his post, may lead to a cardinal shift in Byelorussian policy. The prevailing sentiments among the pro-Western opposition in Byelorussia are as follows: “Lukashenko is trading our sovereignty”, “The union with Russia means a return to a backward Byelorussia”, “Byelorussia should follow its own path into Europe and the EU”.
The negative tendencies typical of these bilateral relations persist as a result of the mounting Byelorussian fuel debt and the continued losses incurred by the Russian budget due to third nations exploiting the Russian-Byelorussian Customs Union. Nevertheless, progress has been made in the bid to establish inter-State financial-industrial groups and to increase cooperation in the financial sphere (joint banks are in the making) and in the purchasing by Russian oil companies LUKoil, Yukos and Slavneft of property in Byelorussia. But these tendencies, in particular, the establishment of multinationals, are characteristic of the present stage of Russia’s links with all CIS countries and therefore do not represent features of an increased level of integration with the regional union under review.
3. Russia is absent from the Central Asian Union (CAU), which incorporates Kazakhstan, Kirghizia and Uzbekistan. The CAU was conceived as a stable political and economic alliance capable of functioning without recourse to Russian aid. Its architects believed it would counterbalance an eventual group of Slavic states whose amalgamation on ethnic grounds (Russia, Byelorussia and Ukraine) seemed quite feasible in the early years of CIS existence. Admittedly, Kazakhstan’s position has always been characterised by a Euroasian approach (favouring, in other words, the idea of including Russia, the states of Central Asia and the European members of CIS in a single economic grouping). Kazakh President Nazarbaev has always favoured closer relationships within regional alliances involving the establishment of supranational governing bodies, the obligation to respect the decisions taken by all the member countries and supreme forms of integration from a common market to currency and political unions. Kazakhstan started out from this premise when working on the founding Treaty of the CAU officially known as the Treaty establishing a single economic space between Kazakhstan, Kirghizia and Uzbekistan.
This Treaty remains little more than a theoretical agreement among politicians. They have never introduced the planned mutual convertibility of currencies (the Kazakh tenge, Uzbek sum and Kirghiz som) and given up the project to introduce the altyn as a single CAU currency. Customs duties on mutual trade remain in force, which means that the area represents a restricted zone of free trade where the free turnover is limited by “seizures”. As a result, Kirghizia has until recently bought oil from China rather than from neighbouring Kazakhstan and bought grain from Canada because with 20 per cent duties levied on Kazakh grain, consumers prefer cheaper overseas grain.
The Alma-Ata session at the end of September 1996 approved a programme for the formation, in the period 1996-1998, of a single economic space embracing the three countries. Ten documents were approved (on the utilisation of fuels and water resources in the region, a programme for the construction and exploitation of gas mains, a project of cooperation in the field of transport and communications, an agreement on inter-State land-leasing, etc.).
Some experts believe that the transformation of CAU into a common market-type economic alliance is not economically necessary. Unfortunately, indispensable conditions such as common export specialisation, a mutual interest in one another’s markets and the availability of vast investment resources are lacking. In addition, the economic structures of Uzbekistan and Kazakhstan do not complement each another particularly well, and there exist deep divides between the two countries. The Treaty of Three is also thwarted by differing approaches to economic reforms and by Uzbekistan’s unconditional rejection of Kirghizia and Kazakhstan as members of the Customs Union (alongside Russia and Byelorussia).
But the problem can certainly be viewed from another angle as well. The success of the CAU summit last August testifies to the promising future of this alliance. The Cooperation and Development Bank of Central Asia that has already been operational for three years has allocated the three states $20 m. for 15 investment projects.
To conclude: 1) A number of the current groupings can be seen as interim unions which, in the future, will either fall to pieces or merge with other groups. They are comprised of members which could easily defect to other regional amalgamations, including those that exist outside the CIS and the former USSR.
2) In general there is a tendency towards consolidation of the subregional cooperation within the CIS framework. Within the next few years Russia will have to seek new mechanisms of cooperation in order to ensure the integrity of CIS economic space.
A closer integration between the CIS countries (i.e. the establishment of a real economic union) may necessitate agreements between the CIS and the Customs Union existing within the first for regulating foreign economic relations. This would not, on a world level, be a new experience: one can cite the example of the establishment of a treaty between the EU (12 countries) and the European Free Tirade Association (EFTA, 7 countries).
 
Igor Kossikov and Lidia Kossikova
 
 
Table
Regional Alliances of Former Soviet Republics
 
Name
Members
Date of Establishment or Entry
Name Type of Alliance, Prospects
I. Russian-led Alliances
Union of Russia and Byelorussia
“Treaty of Two”
Russia,
Byelorussia
April 1996
in force as from August 1996
Customs Union
Plans:
– Common market
– Monetary union (based on the rouble)
– Confederation
Customs Union of Russia, Byelorussia, Kazakhstan and Kirghizia
“Treaty of Four”
Russia,
Byelorussia,
Kazakhstan,
Kirghizia
(Tajikistan likely to join)
Jan. 6, 1995 (Russia, Byelorussia)
Jan. 20, 1995 (Russia, Byelorussia, Kazakhstan)
March 29, 1996 (Kirghizia)
Customs Union
Plans:
– Payment union and common market
II. Russia-free Associations
Central Asian Union (CAU),
Central Asian Economic Space,
“Union of Three”
Kazakhstan,
Uzbekistan,
Kirghizia
(Russia and Tajikistan as observers)
1991: CAU
1995: Treaty on single economic space
Common market
Plans:
– Monetary union
Baltic Union,
Baltic Free Trade Zone (BFTZ)
Estonia,
Latvia,
Lithuania
Sept. 1993
April 1, 1994
New Treaties on free trade in force as from 1996
Free trade zone
Plans:
– Customs union,
– Political union,
– Entry to the EU
Union of the Ukraine and Moldavia
The Ukraine,
Moldavia
(including Dniester area as party in the inter-governmental agreement)
June 1996
Free trade zone
Plans:
– Entry to Central European free trade association
 
Source: CIS Economic Committee documents and reference literature


* This heading includes contributions which the editorial board believes readers will find interesting, but which do not necessarily reflect the board’s views.

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