Russian led Trade Union in the doldrums

A Russian bid to create a major free trade zone in the South Caucasus region to counter poor European Union relations appears to be falling flat.

It is partly a victim of the chill in relations with the west, which arguably could get worse given the growing mess in Syria that has ensnared Russia. The free trade zone, known as the Eurasian Economic Union (EEU or EAEU), and initially consisting of Russia, Belarus and Kazakhstan, promised free trade among partners, a huge market for neighbouring countries and increasing economic activity. Countries involved in the Union, especially Russia, expected to distribute their goods into the new market, faster, cheaper and on a larger scale. But a year and a half since the Union was established, official statistics and ongoing economic events make it obvious that not only have expectations not been met, but the situation has got worse for each country.


Kazakhstan

Nursultan Nazarbaev, Kazakhstan’s president, is said to have been contemplating a regional free trade union since 1994. The sustainability of the Union has been considered by many as its responsibility as a result. But Kazakhstan has its own financial problems. Based on state statistics, Kazakhstan may be the weakest of the union members.

Between January and September 2015, foreign trade turnover was down 36.4 per cent year-on-year according to the Statistics Committee of the Ministry of National Economy. Specifically, exports were down by 42.5 per cent, while imports were off by 3.8 per cent compared to the same period last year.


Belarus

Governed by strongman and Russian stooge Alyaksandr Lukashenka for more than 20 years, Belarus is the other co-founder of the union. According to official data, Belarus’s January-September foreign trade turnover of goods amounted to 42.7 billion US dollars. The number for the same period last year was $57.9 billion, a decrease of 26.7 per cent. Exports and imports also dramatically decreased by 26.7 and 26.1 per cent respectively. Overall the negative trade balance amounted to $1.7 billion

Russia is Belarus’s number one trade partner according to its foreign ministry, consuming 40 per cent of Belarus’s goods. The EU is the second largest buyer of Belarusian produce. The country’s primary export commodities are refined petroleum and potassium fertilizers.

Armenia has been a Eurasian Economic Union member since January 1st 2015 after announcing it would join in September 2013. The country’s youth were suspicious and organised campaigns in front of the Presidential building. They considered it a modernised version of Soviet Union and a threat to them being considered a European nation.

In the tense situation between Armenia and Azerbaijan over the Nagorno-Karabakh conflict, Russia has been considered a stabilising force in the region. Also, Armenians were promised $170 million in new trade within the union. Joining would make economic sense for an Armenian economy that has failed to provide growth in recent years.

Before the pact was implemented, Armenia had been negotiating an association agreement with the EU, including a Deep and Comprehensive Free Trade Area (AA/DCFTA) for almost three years. During the pivotal period when Armenia was deciding its political and economic itinerary, President Serzh Sargsyan announced that Armenia would hold a position of joining both instead of either/or. This meant that Armenia would join the EEU, but at the same time, continue their cooperation with Europe. However, the decision to join the Union in reality, made it impossible to continue the European negotiations.

But as they say, do not count your chickens before they have hatched. Nine months later, it is time to sum up whether all promises and expectations from the Union have been fulfilled. Recently, the Armenian National Statistics Service released a database for the previous nine months of 2015. The numbers tell the story. During the period, Armenia exported $158.5 million worth of products to Russia during the period, down from $219.5 million in 2014, a decrease of $61 million, or 27.8 per cent compared to the same period last year.

In the first nine months of 2014, Russia imported $795 million worth of goods compared to $712.7 million for 2015, a decrease of $82 million or about 11 per cent. In the first nine months of 2014, Armenia exported $6.5 million worth goods to Belarus and just $4.1 million this year, a fall in exports of 37 per cent. Exports from Kazakhstan fell by 20 per cent within the trade partnership over the year. During the first nine months of last year, goods worth $5 billion were exported to Kazakhstan against $4 billion for the same period this year. Exports to European countries fell by only 2 per cent.

Kyrgyzstan is the most recent Union member, having joined in August of this year. Like Armenia, a substantial portion of Kyrgyzstan citizens did not want union membership. Many in Kyrgyzstan, as in Armenia, were reluctant to tie the country’s fortunes firmly to a Russian dominated organisation. To alleviate those concerns, Russia offered Kyrgyzstan a $1.2 billion economic package for membership.

Kyrgyzstan became a member with a negative balance and decreasing exports and imports. The National Statistics Committee reported that during the first six months of this year, foreign trade turnover of Kyrgyzstan decreased by almost 14 per cent compared to the previous year. Thus Kyrgyzstan’s declining economy was hardly a gift for Eurasian Economic Union pact countries.


Russia and the world

In January-September 2015, Russian foreign trade turnover, according to the Bank of Russia amounted to $403.7 billion, 65.7 per cent of the 2014 figure for the same period. Exports came to $260.0 billion, 68.2 per cent of 2014 figures, with imports being $143.7 billion (61.5 per cent of 2014). The trade balance remained positive at $116.2 billion.

Western sanctions over Russia’s misadventures in Ukraine have been a major culprit. Russia’s own counter sanctions and falling global oil prices have troubled the Russian economy further. Given these problems, the ruble has fallen sharply against the US dollar.

The chill in relations with the United States has also had major consequences. US figures for the first five months of 2015 showed trade turnover between Russia and the US declined by 34 per cent compared to the same period last year. The US no longer has much of a connection with Russian markets. Russian businessmen can no longer seek loans from US banks and foreign investors have cut investment to Russia. Now Russians are living in an economy with a currency half of its value, and far lower oil prices. The shots Russia's rivals aimed at the economy were quite well targeted, with gross domestic product falling by 2.2 per cent in the first six months of this year. Further contraction is expected in the second half also.

The turmoil between Western countries, the US and Russia is not new. The cold war has now extended to financial markets and the main warriors are the ruble and the dollar. The sanctions set by European countries and the US were aimed at the most vulnerable parts of Russia, decreasing the oil price and consequently weakening the ruble.

Western country leaders almost certainly did not take into consideration the effect of the sanctions on the economies and social lives of Russia’s neighboring countries. Russia is the number one or, at least, second trading partner for all of the union countries, and is the major consumer of their goods and products. But when Russia catches a cold, as the saying goes, its satellite countries with small markets and limited economic activities, catch pneumonia. Consequently, EEU countries hoping for a sizeable Russian market have been left empty-handed.

Russian President, Vladimir Putin acknowledged the coming economic strains, stating in recent press conferences that the upcoming two years will be tough economically. It will be tougher for satellite countries. Whilst trading with each other, Russia provides many of the countries citizen’s good jobs, with many of them sending earnings made in Russia back home. Given the falling ruble and the cooling economy, salaries have decreased and money transfers have fallen in tandem.


False start on national currencies

Russia has suggested eliminating US dollars and making trade deals only in the national currencies, a plan being implemented in the Eurasian Union. The suggestion does not seem realistic with every country seemingly now trying to save itself. Armenia has already announced it would resume negotiations with the European Commission for a new agreement from December.

Belarus has sought to develop relations with comparatively new business partners as well as with traditional ones in Latin America, notably; Brazil, Venezuela and Ecuador, and in Asia; with China, India, Indonesia and Turkey. Kazakhstan is in a better situation because of its favorable location in Central Asia. China and Japan have signed several deals with them for example.

Kyrgyzstan has other alternatives. Aside from Russia and other post-Soviet countries, the main counterpart countries are Switzerland and the UAE with Kyrgyzstan’s primary exports being gold and refined petroleum.

Russia is also seeking alternatives and appears to have found them in China. As Russia’s political problems with the west have grown, Chinese-Russian relations have begun to blossom. Moscow is hunting out ways to improve its economic outlook.

Some analysts consider Russia’s fight against ISIS as a step to improve its image in the west following the annexation of Crimea. Vladimir Putin, who is three times winner of Forbes designation of the world’s most powerful person, is trying to ease the situation with Russia’s former counterparts. The lifting of sanctions could start the Russian comeback.

Regardless, the Eurasian Union is still a vague and powerless concept. The countries somehow seem like victims. They have been unable to outmaneuver Russia and unable to help Vladimir Putin implement his ambitious Union. Armenia and Kyrgyzstan to some extent are transfer-based economies only.

One clear advantage is that EEU membership eases regulations for working in Russia. Each of the other Union countries have large diasporas in Russia. However, it goes without saying that this Union is not able to compete with, for example, the European Union. The continued existence of the Union is already in doubt, and seems now more of a decoration than a business platform to improve economies.

Manvel Keshishyan is a master student of journalism at the University of Hong Kong.