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Russia without Ukraine is a country;
Russia with Ukraine is an empire.

Eurasian Economic Union

The leaders of Russia, Belarus and Kazakhstan signed an agreement May 29, 2014 to create an alliance for free trade and coordinating important economic policies. At a ceremony in Kazakhstan's capital, Russian President Vladimir Putin and Kazakh leader Nursultan Nazarbayev touted what they called a historic pact. Belarussian President Alexander Lukashenko described the alliance, known as the Eurasian Economic Union, as a hard-fought agreement to tie the region together. Ukraine decided not to take part in the alliance, after its pro-Russia president was ousted in February 2014.

In his annual state of the nation address to parliament and the country’s top political leaders, on 25 April 2005 Putin said the Soviet collapse was a tragedy for Russians. “First and foremost it is worth acknowledging that the demise of the Soviet Union was the greatest geopolitical catastrophe of the century,” Putin said. “As for the Russian people, it became a genuine tragedy. Tens of millions of our fellow citizens and countrymen found themselves beyond the fringes of Russian territory.... The epidemic of collapse has spilled over to Russia itself,” he said, referring to separatist movements such as those in Chechnya. “We are a free nation and our place in the modern world will be defined only by how successful and strong we are,” Putin said.

Russian President Vladimir Putin made the creation of a post-Soviet economic union that could one day be joined by nations such as Turkey and India a key project of his third Kremlin term. The alliance would replace a much looser Eurasian Customs Union that Russia formed with the Kazakhstan and Belarus in an effort to build up a free trade rival to the 28-nation EU bloc. More than 20 years after the collapse of the Soviet Union, Russia is again herding former Soviet republics into a union to reap political advantages if not economic ones.

StateGDP 2012
M, 2012
Russia $ 2,486.0 142.5
Kazakhstan $ 228.7 17.7
Belarus $ 145.3 9.6
Armenia $ 19.4 3.0
Kyrgyzstan$ 13.1 5.5
Eurasian Union$ 2,892.5 178.3
Ukraine $ 331.6 44.6
Uzbekistan$ 103.8 28.7
Azerbaijan $ 95.7 9.6
Lithuania $ 64.3 3.5
Turkmenistan $ 48.5 5.1
Latvia $ 36.9 2.2
Estonia $ 29.1 1.3
Georgia$ 26.3 4.9
Tajikistan $ 17.6 7.9
Moldova $ 12.0 3.6
Other ex-USSR$ 765.8 111.4
All ex-USSR$ 3,658.3 289.7
USSR 1989$ 4,300.0 286.7
Poland $ 792.4 38.4
Finland $ 194.1 5.3
Other ex-Empire$ 986.5 43.7
All ex-Empire$ 4,644.8 333.4
Russia 1914$ 500.0 156.2
So how does Putin's new empire stack up against the Russian and Soviet Empires of old? With 500 million consumers the European Union has twice the population of the Eurasian Economic Union and an economy six times the size of the rival bloc that Russian President Vladimir Putin is putting together. The Eurasian Economic Union would have 80% the population of the Soviet Union, and two-thirds the economy, while it would have a population 50% greater than that of the Russian Empire of the Romanovs.

One of the myriad complications in estimating and analyzing a comprehensive time series is approaching the changes in countries’ sovereignty status. It is difficult to produce a time series that is both comprehensive and appropriately reflective of geopolitical chronology. The USSR republics poses a unique challenge. Spencer L James concluded that Soviet GDP per capital in constant PPP dollars peaked in 1989, and did not return to this level until 2006. By the year 2012 they estimate it had increased to about 1.17 times this level. Soviet GDP was estimated at about $2.4 trillion in 1989, which would probably equate to about $3.6 trillion in 1989. Russia's GDP at official exchange rates was $2.002 trillion (2012 est.), and $2.486 trillion at purchasing power parity (2012 est.). This implies a Soviet PPP GDP in 1989 of about $4.3 trillion. The economy of the Russian empire in 1914 amounted to about US$ 232 billion in 1990 dollars, or perhaps US$ 500 billion in 2012 PPP dollars [a very, very round number, given the vary long time series].

The issue of Ukraine’s possible accession to the Customs Union has major political resonance. In December 2012, US Secretary of State Hillary Clinton criticized the initiative in an address to the Organization for Security and Cooperation in Europe. “It’s going to be called a Customs Union, it will be called Eurasian Union and all of that. But let’s make no mistake about it,” Clinton said, branding the move “re-Sovietization.”

The first attempt to create the customs union by Russia, Belarus, Kazakhstan, and Kyrgyzstan was made in 1995. But it didn’t work. Basically it existed on paper and it was apparent that it failed when Kyrgyzstan, a customs union member, decided to join the WTO without consulting other member states. Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan set up a regional economic organization named EurAsEC (Eurasian Economic Community) in 2000.

Through the first half of 2009, Russia’s efforts to negotiate the terms for its accession to the World TradeOrganization (WTO), begun in 1993, made significant progress. With the exception of Georgia, Russiahad completed bilateral market access negotiations with interested WTO Members, including the United States. On the multilateral front, Russia continued discussions with WTO Members that focused on, inter alia, adoption and application of sanitary and phytosanitary measures, agriculture (including domestic support levels), intellectual property rights protection, rules for requiring import licenses for products with encryption technology, the levels of certain export duties, and whether Russia’s state-owned enterprises would operate on a commercial basis. In addition, Russia had much work to do to implement WTO provisions into its domestic law and to comply with bilateral agreements already in force.

On June 9, 2009, however, Prime Minister Putin announced that Russia, Kazakhstan, and Belarus would suspend their individual applications for accession to the WTO in favor of a joint application for membership as a customs union. Subsequently, the government of Russia appeared to reverse its position, offering to continue its individual WTO accession negotiations, but with the intention that all three countries accede on similar terms on issues covered by the customs union.

In 2006, Kazakhstan, Russia, and Belarus announced the formation of a trilateral customs union. The Russia, Belarus, Kazakhstan Customs Union (RBK-CU) was launched in January 2010, the customs code was adopted in July 2010, and then in the summer of 2011, the customs borders were moved to the external parameter of member states. But a lengthy harmonization process was required by differences in the economic and legal systems of Kazakhstan, Russia, and Belarus. Where one country's legislation was more liberal, the negotiators committed to accepting the more liberal version in order to benefit businesses.

The RBKCU represents the core of the Eurasian Economic Community (EurAsEc), as its members are the three founding countries of the group. As a result, the RBKCU planned to use many of the legal structures already in existence in EurAsEc as its own institutions. Some of these authorities, such as the Interstate Council, have already been approved for use by the RBKCU. Any country wanting to joint the RBKCU must follow EurAsEc's membership procedures to join. As EurAsEc members become "ready" they may be included in the RBKCU. Other current members of EurAsEc are Tajikistan and Turkmenistan, with Armenia, Moldova and Romania as observers. Uzbekistan was once a member, but now has an undefined observer-like status.

The RBKCU Secretariat provides organizational and technical support to the Commission and is located in Moscow. It is responsible for the day-to-day operations among the member states and publication of information about the RBKCU. The RBKCU Commission is the single permanent regulatory body of the Customs Union and makes most of the policy-level decisions for the RBKCU. The Commission is also responsible for the execution of decisions made by the Interstate Council, and the operation and development of the Customs Union. It meets in Moscow once a month. The supreme body of the RBKCU is the Interstate Council of EurAsEc, which operates on two levels. The Heads of State meet once a year, while the Heads of Government meet twice a year.

Each member country submits to the RBKCU Secretariat, for consideration by the Commission, proposals for the introduction, use, modification, or termination of measures to regulate foreign trade in goods. The voting procedure for the Commission gives Russia 57% of the votes, and Belarus and Kazakhstan each 21.5%. Decisions will require a two-thirds majority, unless international treaties that form the legal basis of the RBKCU stipulate a consensus. If there are insufficient votes (i.e. Russia does not agree with a unified Belarus-Kazakhstan position), the Commission will refer the question to the Interstate council at the level of Heads of State. Similarly, if one of the member states disagrees with the Commission's decision, the issue can be appealed to the Heads of State, who will consider the issue and decide by consensus.

Officially the main reason for the creation of the customs union and further Eurasian integration was economic – a large market of 170 million people. That it will create opportunities for businesses to invest so that they can benefit from this big market. Another reason given by authorities was that the customs union will help businesses to trade for WTO. In parallel with the customs union with Eurasian integration, WTO were accession procedures going on.

The main official reason was economic, but there were political reasons and geopolitical reasons. Putin wanted this as a way to re-establish influence in the post-Soviet space. Sometimes while creating a customs union, political reasons dominate and economic reasons are ignored. Political reasons mean uniting states as soon as possible. Prime Minister Vladimir Putin often says so. This lies behind the aspiration to create a new economic center which will be competitive and could compete with other economic centers.

As a condition of membership, Kazakhstan almost doubled its average import tariff and introduced annual tariff-rate quotas (TRQs) on poultry, beef, and pork. Some Kazakhstani producers that were producing higher end products were very negatively affected by the customs union because they were using Western, Chinese equipment, material, and the tariffs on those went up considerably. Their products become not competitive. Belarus, which had been developing its industry for many years thanks to subsidized Russian hydrocarbons, has access to the huge Russian market for its trucks, car parts, tires and food and benefits most from integration. For Russia it made more sense economically, because Russian industries are more competitive compared to businesses of the other members. For Russian businesses that are not competitive globally it was a good market to capture.

In November 2011, the Russian, Belarusian and Kazakh presidents signed a declaration on Eurasian economic integration, a roadmap of integration processes aimed at creating the Eurasian Economic Union, which would be based on the Customs Union and common economic space between the three countries. On January 1, 2012, the Customs Union partners created the Common Economic Space (CES) which is intended to be a step toward further economic integration. While many agreements for the Common Economic Space were still being negotiated in 2013, the first 17 came into force in 2012. The government of Kazakhstan has asserted that CES agreements comply with WTO standards. If CES agreements are not WTO compliant, however, WTO commitments supersede CES rules.

Russia and Ukraine have had a series of politically driven commercial spats since the fall of the Soviet Union, and the Kremlin pushed for Ukraine to join the Moscow-led Customs Union with Russia, Kazakhstan and Belarus. The Moscow-led Customs Union of Russia, Belarus and Kazakhstan may have to use protective measures should Ukraine sign an association agreement with the European Union, Russian President Vladimir Putin has said. On 14 July 2013, Russia introduced rigorous checks of Ukrainian goods crossing its border. A number of Ukrainian manufacturers said the move de-facto blocked their exports to Russia. The restrictions have also been condemned by Ukrainian lawmakers from across the political spectrum, with some describing the move as part of a “trade war.” “If our neighbors [Ukraine] resort to a substantial liberalization of their customs regime with the EU, goods that are not bad in terms of quality and price would inevitably gush to the Ukrainian market, but they would be squeezing out Ukrainian-made goods from the Ukrainian market,” Putin said 23 August 2013.

After Ukraine pulled back from signing a landmark trade and political association deal with Brussels in November 2013, sparking the biggest protests since the 2004 Orange Revolution, Russia and the EU traded blame over bringing pressure to bear on the country. Ukraine agreed to a $15-billion bailout package with Russia that also included a one-third cut in the price Moscow charges its neighbour for natural gas. At his annual press conference in December 2013, President Putin said: "We can see that Ukraine is experiencing serious economic, social and political problems. There are a number of reasons why this situation has arisen, but this is how the situation stands objectively. And if we really say that it is a fraternal nation and a fraternal country, then we should act the way close family members do and support the Ukrainian people in this difficult situation.

Russian President Vladimir Putin said on 23 December 2013 the final pieces were in place for the 2015 launch of the economic union with Belarus and Kazakhstan that Moscow hoped can also be joined by Ukraine. Putin promised following talks with Kazakh President Nursultan Nazarbayev and Belarussian leader Alexander Lukashenko that the Eurasian Economic Union would turn into a new source of growth for all involved. "Government representatives of the troika (Russia, Kazakhstan and Belarus) ... have developed the draft of the institutional part of the Eurasian Economic Union agreement," Putin said in televised remarks. "This document determines the international legal status, organisational frameworks, the objectives and mechanisms of how the union will operate starting on January 1, 2015," Putin said.

The three states agreed on a 'road map' paving the way for the membership in their union of Armenia -- a tiny ex-Soviet Caucasus nation that had also been expected to sign an initial agreement with Brussels. Russia slashed the price of its natural gas imports from Russia to $189 from $270 per 1,000 cubic meters. In December 2013 Russia's First Deputy Prime Minister Igor Shuvalov said it should take "about half a year" for Armenia to formally join the existing Moscow-led customs pact.

Putin added that the impoverished Central Asian state of Kyrgyzstan was also conducting initial membership talks. Kyrgyzstan's participation has been held up by Russia's worries over its inability to plug its porous border with China. Russian Deputy Prime Minister Dmitry Rogozin warned in late 2013 that if Moldova made a move towards the EU, it can say goodbye to the Transdniester, the secessionist region guarded by 1,200 Russian peacekeeping troops. In December 2013, Transdniester passed a law mandating Russian-language legislation, saying the separatist region's major goal is integration into the Russia-led Customs Union.

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Page last modified: 02-01-2015 20:03:55 ZULU