Kazakhstan - Eurasian Economic Union Gap

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Leaders of the five member countries of the Eurasian Economic Union meet in Moscow in mid December 2015. Kazakh President Nursultan Nazarbayev recently suggested that the EEU attempt closer integration with both China’s Silk Road Economic Belt concept and the European Union.

Tough times for the Eurasian Economic Union are causing disillusionment among its members — Kazakhstan most notably — although Russia seems indisposed to pay heed to such misgivings.

Instead, the Kremlin has become embroiled in a series of diplomatic dust-ups, leaving its closest partners in the five-nation trade bloc hostage to Moscow’s economic and geopolitical policies.

Kazakhstan’s leader, Nursultan Nazarbayev, presides over an economy roughly one-tenth the size of Russia’s, but more than twice the size of the economies of the other EEU members – Armenia, Belarus and Kyrgyzstan – combined.

In a February 11 appeal to EEU heads of state, Nazarbayev outlined the argument for closer integration with both China’s Silk Road Economic Belt concept and the European Union, where Russia’s ties remain frazzled by its adventures in Ukraine.

“We see the Eurasian Economic Union as an open economic association, relatively integrated into the global economic system as a reliable bridge between Europe and a rising Asia,” he wrote, in a call to make 2016 “the year to deepen the economic relations of the Union with third countries and key trade blocs.”

That desire to branch out is understandable. Kazakhstan’s overall external trade turnover fell by 37 percent in 2015, and by 29 percent within the EEU. The national currency, the tenge, has lost half its value against the dollar since the national bank scrapped a costly trading band last August.

Indicators for the bloc across the board were not much better. Intra-EEU trade tumbled 26 percent and members spent an average of 10-15 percent of their sovereign reserves defending national currencies that are wilting under the pressure of falling oil prices and Russia’s souring economy.

And even though the EEU was meant to usher in a new era of trade harmony, the reality has been less rosy. Both Belarus and Kazakhstan have found themselves engaging in periodic trade conflicts with Russia to protect strategic areas of the economy from currency volatility — a problem Moscow offered to mitigate through the formation of a single currency for the bloc.

“It is very difficult to point to any concrete benefits of EEU membership in the past year,” Zach Wiltin, a Eurasia analyst at the Washington DC-based Eurasia Group told EurasiaNet.org.

“EEU membership might have made the situation worse for other member states by intensifying exposures to Russia,” said Witlin, noting Russia had “largely failed to secure Belarusian and Kazakh cooperation” in enforcing counter-sanctions against Brussels.

Last year, the bloc signed a Free Trade Area agreement with Russia’s ally in Southeast Asia, Vietnam, and is reportedly negotiating similar deals with India, Israel and Egypt.

Russian economy minister Alexey Ulyukaev has said that over 40 countries and organizations have expressed interest in cooperation with the EEU. But it is the EEU’s relationship with China, which views Kazakhstan as a key point of entry for huge infrastructure and trade investments, that will take precedence for Astana.

Russia has so far played it cool over Beijing’s calls for a free trade area within the Shanghai Cooperation Organization (SCO) and resisted the creation of an SCO development bank that would be funded largely with Chinese capital.

Brussels is, in turn, dangling the carrot of closer ties between the two trade blocs, but such an offer is likely intertwined with negotiations surrounding Ukraine and Syria, and conditioned on concessions that may not be palatable for Russian President Vladimir Putin.

Turkey is also a solid trade partner for Kazakhstan and “was once considered as a partner of the Union” but any agreement became “impossible for political reasons” after Ankara shot down a Russian military jet last November, Nikita Mendkovich, an analyst at the Russian International Affairs Council told EurasiaNet.org.

Moreover, in the last year, Kazakhstan “has given clear examples of anxiety” over Russia’s bid to introduce European Union-like institutions into the Eurasian space (such as a parliament), according to Rilka Dragneva-Lewers, an expert on the Eurasian Economic Union at the University of Birmingham in Britain.

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