Wednesday, 05 February 2014

Central Asian Qualms About Eurasian Union Mounting

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By Stephen Blank (the 05/02/2014 issue of the CACI Analyst)

The current Ukrainian crisis has focused attention on Russia’s drive to construct a Eurasian Economic Union (EEU) and a customs Union as part of it. But Ukraine is by no means the whole story, as reservations if not resistance to the project mount in Central Asia. Both Kazakhstan and Kyrgyzstan have taken steps to resist Russian encroachments and to raise the price of their admission into this union. In January 2014, Kazakhstan's government launched a plan to re-privatize the crucial Kazakh banking sector, partly in order to shield it from the tactics used by Russian banks to buy up equity in distressed banks under EEU guidelines. Kyrgyzstan also displays an increased desire to force Russia to bargain for Kyrgyzstan’s adhesion to the Customs Union and EEU. 

 

BACKGROUND: Russia continues to maintain that the door is open to all Central Asian states, particularly Kyrgyzstan and Tajikistan, to join both projects even though their contributions would be minimal and might result in a transfer of resources from Russia to these countries. But while Kyrgyzstan could according to its own government not enter the Customs Union before 2015, it is apparently not happy with the proposed road map. It clearly feels the conditions advanced for its joining the Customs Union do not sufficiently guard the interests of the state and has directed its negotiators to uphold those interests. The road map was completed without Kyrgyz participation and approved by the Eurasian Economic Commission without the Kyrgyz government’s approval. 

Although those statements opposing the road map were made in December 2013, the intergovernmental working group on Kyrgyzstan's entry rejected the proposed roadmap already in August 2013 and has not met since then. Pro-Kremlin analysts like Alexander Knyazev accused Bishkek of trying to preserve a criminalized economy of Chinese contraband (thus inadvertently giving away a prime reason for the union, namely excluding Chinese commerce) and Afghan narcotics. By November 2013, Kyrgyz President Almazbek Atambayev stated that 2015 might be too early for entry. Kyrgyz delegates are demanding the right to maintain low WTO-style tariffs on almost 1000 goods imported mainly from China so that it can then re-export them.  This shuttle trade exceeds Kyrgyzstan’s 2008 GNP by almost 100 percent. At the same time, agricultural sectors are divided over the benefits of joining because chicken farmers who export see access to a large market, whereas crop farmers fear the invasion of cheaper or protected crops from Russia if not Kazakhstan. Car dealers will also face a doubling of prices for imported cars.

But it is clear that Kyrgyzstan is demanding large subsidies before entry into the Union, US$ 200 million annually for five years. This sum may be more than Moscow is willing to pay, but Kyrgyzstan has stuck to that demand and its experts reckon it also needs US$ 215 million to build border infrastructure that complies with the Custom Union’s rules. At the same time, many new entrepreneurs are more interested in exporting to the global market than merely to the customs union. And the Kyrgyz political party Reform has now opposed the Customs Union for leading to higher prices and ensuing social tensions.

IMPLICATIONS: It is clear that for Kyrgyzstan and Tajikistan to join the Customs Union and EEU, Moscow will have to subsidize them generously for a long time.  Although this was the case with the new EU members, it clearly does not appear to be part of Moscow’s calculations. The attempt by EEU bodies and intergovernmental groups to dictate terms to Kyrgyzstan without its participation extends the concerns voiced by Kazakhstan and its President Nursultan Nazarbayev in 2013 and sheds a revealing light on just how unlike the EU these organizations are.

Clearly, Moscow is unwilling to grasp that if it wants a union structured along EU lines as Putin has claimed, it will have to pay for it handsomely and for a long time.  Russia instead seemed to think it could dictate terms and impose terms of trade on poor small states like Kyrgyzstan and even upon much stronger states like Kazakhstan. Therefore, it apparently failed to reckon with the potential of opposition from these states, let alone with the reality of having to subsidize Kyrgyzstan for years.

Moreover, as the late Alexandros Petersen has pointed out, based on his discussions with Chinese traders, they do not see these Russian moves as representing a serious threat to their growing ascendancy in Central Asian markets. It is hence debatable whether or not the Customs Union and EEU can achieve their economic and geopolitical goals. In that case, Moscow would end up with the worst of all worlds, a Customs Union of little or no economic benefit and long-term subsidies of poorer states to keep them in its political orbit. Unfortunately this outcome bears an uncanny resemblance to what the Soviet bloc had become by the 1970s and to a system of relationships that was an instrumental feature in its collapse because it was unsustainable.

This does not mean that Russia lacks the means to force these states into the Union or will not attempt to do so. Indeed, the evidence to date suggests that Russia will readily use whatever coercive tactics it possesses for that purpose. In 2010, Russia raised its energy tariffs on Kyrgyzstan to a level that provoked the revolution of that year, unseating the truly criminalized Bakiyev ruling clan. But the point is that coercing Kyrgyzstan and presumably Tajikistan as well into joining the customs union and EEU gains little or nothing for Moscow, especially if it cannot stop the flood of Chinese goods that now compete successfully against Russian products in Central Asia. Coercion is unprofitable because it only leads to ever larger subsidization of non-competitive “Putinized” economies in a vain effort to retain them in a weaker version of the Soviet system or bloc. Moscow would then be reaffirming the truth of Marx’s observation that when history repeats itself the first time it is a tragedy and the second time a farce.

However, it is unclear whether Moscow grasps this logic. Its policy has been driven by the idea of a revived version of the Russian or Soviet empire and key members of the elite, like Sergei Glazyev, seem to be animated by the idea that one can make a reformed Marxist economy work somehow. But this may yet help plunge the area comprised by the Customs Union and EEU into ever greater political instability because these states’ ability to compete globally and economically will have been fatally compromised. This warning applies to Russia as well. If Russia cannot grow using its current growth model, which even members of the government acknowledge, how can it afford to sustain a neo-imperial policy that inevitably leads to long-term or ever growing subsidies of the poorer members?

Under the circumstances, it is hardly surprising that many independent Russian economists have argued that the Customs Union and EEU will provide little or no benefit to Russia and that it makes equally little sense in economic terms. On the other hand, as Moscow’s pressure on Armenia and Ukraine shows, it does represent a geopolitical program par excellence, namely the extrusion of EU influence in the West and Chinese commercial and economic power in the East. Another geopolitical motive is to ensure that the states around Russia resemble it in terms of their governmental and economic structure. But that socio-economic-political structure has already led to a dead end, acknowledged by leading members of the Russian government.

CONCLUSIONS: It is hardly surprising that we see revolutionary upheavals in Kyiv and mounting opposition from governmental and private sectors in Kazakhstan and Kyrgyzstan. Until now, Moscow has been deaf and blind to these protests or to the need to put its own house in order. But the delusion that it can refashion something like the old empire at tolerable economic-political costs by repression and subsidies suggests what Einstein described as insanity, namely doing the same thing over and over again and expecting different results. If this is and remains the case, then not only will the Kazakh, Kyrgyz, and Ukrainian objections to these unions be disregarded, Russia will also (and quite literally) have to use force or the threat of it  to induce acquiescence in its grand design.

AUTHOR’S BIO: Stephen Blank is a Senior Fellow with the American Foreign Policy Council. 

Read 6632 times Last modified on Thursday, 06 February 2014

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The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.

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