Eurasian Customs Union: Advantages and Disadvantages
The Eurasian Economic Community was established in 2000 by Russia, Kazakhstan, Belarus,
Kyrgyzstan and Tajikistan; it became the Customs Union on January 1, 2010 with an
agreement signed by Russia, Kazakhstan and Belarus. Under this agreement, member states
decided to remove borders and customs controls and to integrate their domestic markets,
allowing the free movement of goods, capital and workers. As the next and final stage of the
establishment of the Customs Union, its members planned to establish the Eurasian Union, a
supranational organization like the European Union, by January 1, 2015. Following his
victory in the Russian presidential elections for the third time, Putin accelerated the process,
seeking to gather the former Soviet Republics under the umbrella of the Eurasian Union.
Although Russia’s official line is that it wants to create a common economic sphere, many
countries are concerned about the possibility that the union would be used by Russia as a tool
to expand its geopolitical sphere of influence. And in fact, Russia has not hesitated to apply
all kinds of economic and political pressure on those countries in order to compel them to
join. The prime examples of this are the natural gas crisis between Russia and Ukraine, and
the increased pressure on Azerbaijani migrants working in Russia, some of whom were even
deported.
In order to better understand the structure of the Russia-sponsored Customs Union, we need to
examine the advantages and disadvantages of the union. What advantages and disadvantages
will its members face?
Advantages of the Customs Union
1) As customs controls between member states will be abolished, they will be exempt from
customs duties. Thus, costs of some goods will be lower, which will increase the trade volume
among member states.
2) Producing companies will be able to import customs-free raw materials from member
states, which will lower production costs, and facilitate and increase the production of related
goods.
3) The volume of direct investments among member states will increase with the free
movement of goods and capital. In this way, there will be more employment opportunities,
and cash flow into those countries will increase.
4) The free movement of workers will enable citizens of member states to live and work in
other member states without visas. Today, there are high numbers of migrants working in
Russia, and Moscow consistently uses this as a tool of political oppression against
neighbouring countries. Russia intimidated other countries by deporting a large number of
Georgian migrants in 2008.
5) One of the objectives of membership is a common currency. This would prevent exchange
rate fluctuations, which would improve and facilitate commercial relations within the union
and contribute to the creation of a stable commercial environment.
Disadvantages of the Customs Union
1) The most important disadvantage of the Customs Union will be member states’
renunciation of their sovereignty and their right to follow independent policies. Member states
will not be able to enter into agreements with third countries as they wish, and they will have
to obtain the approval of other members. Agreements which conflict with member states’
interests, particularly Russia’s, are likely to be rejected, which will prevent those states from
following independent policies.
2) Member states will apply higher customs tariffs on the products they buy from third
countries in order to increase the trade volume among them. In this way, products which
formerly were bought from third countries at lower prices will become more expensive, and
production costs will accordingly rise.
3) Energy is the leading export for countries rich in hydrocarbon resources, such as
Azerbaijan, Kazakhstan and Turkmenistan. In this case, they will not be able to adopt
independent policies in energy trade, which is the engine of their economic development. A
uniform energy policy will be adopted across the union. Member states will have to sell their
resources at lower prices to other member states and for higher prices to third countries,
which will be a huge disadvantage for countries where energy exports are the primary source
of revenue. Moreover, Russia wants to gain a monopoly over natural gas and thus it is highly
likely that energy policies will be shaped according to Russia’s interests, which will further
strengthen the Russian monopoly.
4) Although common customs tariffs will be applied, they will largely comply with Russia’s
customs tariffs, which will serve its particular national interests. Thus Russia will set high
customs tariffs for the sale of Russian products to third countries; high customs tariffs will be
applied to non-member countries in order that Russia can sell its products at higher prices to
member countries. On the other hand, it will try to keep customs tariffs lower for the products
not produced in Russia. The best example here is the difference between the former and
current customs tariffs of Russia, Belarus and Kazakhstan following the adoption of a
common customs tariff. According to Trade Consultancy of the Turkish Embassy in Moscow,
for Russia, 82% of tariffs remained the same, 14% were decreased, and 4% increased. For
Belarus, 75% of tariffs remained the same, 7% were decreased, and 18% increased. For
Kazakhstan, 45% of tariffs remained the same, 10% were decreased, and 45% increased.
5) Labour forces in less developed countries such as Kyrgyzstan, Tajikistan and Armenia,
which are expected to become members, would flow to Russia, Azerbaijan, Kazakhstan and
Turkmenistan, all of which have stronger economies. This would have a negative impact on
domestic labour force markets and lower the wages in those countries.
6) Given that most member states have no direct access to the sea, imports from third
countries will be mostly managed by Russia via its Black Sea coast, and these imported
products can be sold to other member states duty free. Russia will profit from customs duties
while importing, and will also be able to freely export its imported products to other countries.
Thus, as outlined above, the Customs Union offers some short term benefits to its members,
but at serious economic and political cost in the long term. Although the union is based on the
idea of creating a common economic sphere among member states, it is clearly intended to
serve Russian national interests in the long term, make their economies dependent on Russia
and form a basis for political dependency. In political terms, the easiest way to gain influence
over a state is to ensure its economic dependence. Russia wants to use the Eurasian Economic
Union as a means to collectively influence the former Soviet Republics.
This union will also have negative implications for Turkey and Europe, which have important
relations with the region. Exports from Turkey will decrease due to the Customs Union; and
energy and transportation projects developed by the region’s countries for its benefit as well
as Europe will be disrupted.
*Emin Akhundzada, PhD Candidate, Acadamecis & Research Coordinator at Caspian Strategy Institute
Twitter:@Eminn_A