By Emil Avdaliani
The Eurasian Economic Union (EAEU) has been experiencing a somewhat turbulent recent period. Geopolitical changes in Eurasia resulting into shifts in trade routes and supply chains have impacted the operation of the Moscow-led Union, encompassing five countries: Armenia, Belarus, Kazakhstan, Russia, and Kyrgyzstan.
Created and developed in 2010s the EAEU has an ambition to limit western economic expansion in what is still called the former Soviet space and enhance Russia’s ability to project and solidify its influence over its immediate neighborhood. Another ambition behind Moscow’s decision to develop the EAEU was to create a counterbalance to the European Union (EU) and to establish an equal partner to China which introduced its Belt and Road Initiative (BRI) in 2013.
Ever since, the EAEU’s prospects have been mixed. With multiple propitious developments (such as trade development) the EAEU also faces a host of geopolitical and structural challenges.
Upside
In 2021, the volume of internal trade in the EAEU reached US$73.1 billion. Russia and Belarus trade amounted to US$39.7 billion, and between Russia and Kazakhstan – US$25.4 billion. Since 2015, the volume of mutual trade between all five member states increased by 60% and in 2021 reached a historic maximum – $73.1 billion. In 2022, that mutual trade grew further reaching US$80.6 billion.
Downside
Between 2012-2021, the EAEU increased industrial production by 20%. This however failed to lead to greater trade, which over the same period grew slightly from 13.5% to only 14.6%. The covid pandemic was another serious hindrance. In 2020, Russian exports decreased to 20.6% and Kazakhstan’s by 19.1% – all compared to the previous year. Another structural problem has been that much of the internal EAEU trade is effectively Belarus-Russia trade. For instance, in 2020 Belarus-Russia trade accounted for 52% of the EAEU trade.
Evolution
However, more multilateral promising results were achieved by the EAEU’s second largest player – Kazakhstan. Throughout 2022, Kazakhstan had a GDP growth rate of 3.2% (US$225.2 billion). Trade between Kazakhstan and the EAEU member states increased by 7.1% compared to the previous year. In 2022 Kazakhstan’s export to the EAEU increased by some 22.3%. Overall, Kazakhstan’s trade with EAEU members grew by 60%. Kazakhstan’s trade with the EAEU covered 25.7% of the country’s overall foreign trade in 2021. If compared with Russia, the latter’s share of intra-union trade is the smallest of EAEU member states and represents only 8-9% of the country’s overall trade.
Belarus turned out to be the most oriented country for intra-union trade, increasing the share of trade with the member states from 49.5% in 2015 to 50.5% in 2021. In 2021 trade between Belarus and the EAEU member states amounted to US$41.3 billion – a considerable increase from the US$30.6 billion registered in 2020. Major exported products were cheese, meat, butter, furniture and farming equipment, with Russia being a major destination.
Since the creation of the EAEU, Armenia’s exports to the member states have increased by a factor of ten times. In 2022 Armenia’s trade with EAEU member states amounted to US$5.33 billion – an increase by some 92.7% in comparison with 2021. Armenia’s exports amounted to about US$2.5 billion, (2.8 times more than in 2021), while imports – US$2.7 billion (49% more than in 2021). The growth in trade with EAEU mostly comes with the increase in Armenia-Russia trade.
Armenia has become a critical partner for Russia following the war in Ukraine and the ensuing sanctions imposed on Moscow. In 2022 export from Armenia to Russia almost tripled from US$841 million to US$2.4 billion. In the same period trade between Russia and Armenia reached US$5.03 billion with a sharp acceleration in annual growth from 20.9% to 91.7%.
Significant growth was registered with other EAEU members. In the case of Belarus a 2.2 multiple increase of US$185.8 million dollars was registered, while with Kazakhstan the growth reached US$41.9 million, or 2.1 times more than in 2021. Even Kyrgyzstan, most distant EAEU member for Armenia, recorded a threefold growth with Armenia in 2022.
External Relations
The EAEU’s external relations have likewise flourished. The EAEU and Iran are negotiating the creation of a common free trade area (FTA), which could be signed by this year end. The existing temporary trade agreement between the EAEU and Iran has already brought results. By the end of 2021, trade increased by 73.5%, to US$5 billion, while exports from the EAEU to Iran increased 2.1 times, to US$3.4 billion.
The EAEU also plans to expand its free trade agreements with other actors from the Global South. One of these is Indonesia which in early 2023 launched negotiations on the creation of a free trade agreement with the EAEU members. Indonesia is an important player. In 2022 the trade turnover between EAEU and Indonesia increased by nearly 50% compared to 2021, while exports increased by more than 2.5 times, imports – by about 16%, the trade block reports.
In 2021, the trade turnover of the EAEU countries with Indonesia amounted to US$3.8 billion – an increase of 42%.
Yet seen from a decades-long perspective, the volume of EAEU’s external trade decreased from US$938.8 billion to US$846.4 billion. The covid pandemic is partly to blame, as is the Ukraine conflict and the Western sanctions imposed upon Russia.
Investment
In terms of investment, the EAEU has seen moderate, and unequally divided growth. Between 2015-2022, the total volume of accumulated mutual investments of the EAEU member countries increased by 5.8%, from US$16.8 to US$17 billion. At the same time, in comparison with 2021 an increase in the total volume of accumulated mutual investments (excluding Kyrgyzstan) was observed in all EAEU member states. Kazakhstan has experienced a 15.4% growth. In Armenia and Russia, this figure was lower – 9.8% and 9.1%, respectively, while in Belarus – a 5.5% investment increase.
Challenges
Major challenges that the EAEU is facing are both geopolitical as well as internal and structural. With the veritable economic warfare raging between the collective West and Russia, the latter has been more constrained in reaching long-pledged goals, such as positioning the EAEU as a connector between the EU and China’s BRI.
While the vacuum created as a result of the exit of some Western businesses from Russia could serve as a momentum for EAEU member states to fill the market, the EAEU will continue to face its major challenge – Russia’s outsize economic and political role. The country is involved in approximately 80% of the intra-EAEU trade.
Occasional differences between member states also complicate the smooth operation of the EAEU. But perhaps most significant development is that the EAEU is gradually turning into an increasingly more Asia-centered bloc. Negotiations concerning FTAs are mostly held with Asian and African states. Powered by Russia’s turn to the East, for the collective EAEU, it could lead to the emergence of a new fixation on one region.
Additionally, smaller but nevertheless highly important problems remain. The EAEU member states are not producing enough, or of fair quality to compete on Asian markets. Indeed, for all the EAEU member countries, the main export commodities remain natural resources. There are also inadequate programs for the development of production capacities, which hampers trade within the EAEU. Moreover, integration within EAEU is mainly taking place in the traditional sectors of the economy energy sector and chemical and petrochemical industries, when what is clearly needed is an innovative integration.
No less important hindrance for the EAEU development is the lack of adequate transport infrastructure. The unification of national transport systems of the five member states into a single transport and logistics space is happening too slowly.
With a major reshuffling of Eurasian trade routes as a result of the West’s sanctions and China’s growing ambitions to changes logistics patterns in Central Asia, the EAEU’s level of adaptability remain inadequate. It will require a minimization of intra-EAEU disagreements to resolve. It will also need a vision which will look at the EAEU less from a geopolitical perspective, but rather as a truly economic project as a Free Trade region in its own right. The question for the EAEU to ask is how long can Russia remain distracted by Ukraine while its new trade routes East via the EAEU also require significant attention?
Emil Avdaliani is a professor of international relations at European University in Tbilisi, Georgia, and a scholar of silk roads.
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