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The Future Being Born Today: Integration and Infrastructure Projects in Eurasia

May 26, 20:04 UTC+3
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The Eurasian Economic Union (EAEU) advocates common economic space from Lisbon to Vladivostok. The European Union (EU) recognises the benefits of such a partnership, but links its development to the resolution of political differences. In 2016, we finally started exploring opportunities to bring these two integration associations closer together.

The discussion of a possibility to integrate the EU and the EAEU into a single economic system has been ongoing since 2014. After the escalation of geopolitical tensions, all efforts to that end were suspended. The EU builds its relations with the EAEU member states on an individual basis, as if the organisation never existed.

Despite that, a research is underway to define the theoretical foundations for the Eurasian integration, with the International Institute for Applied Systems Analysis (IIASA) and the Eurasian Development Bank (EADB) acting as the platforms for discussions and intermediaries in the dialogue between the EU and the EAEU. In 2016, these two institutions published a report on the challenges posed by the long-term integration process.

  • Experts from the EADB and the IIASA converge that working agreements on cooperation between the EU and the EAEU may come into force by 2020 subject to de-escalation of tensions between Russia and the EU and definition of a substantiated strategic position by each party to the negotiations.

Hence, the theoretical premises for alignment rely on the assumption of relations between the EU and Russia normalising in the near term.

  • Although the share of the European Union in Russia's external trade volume dropped by 6.4 p.p. after the introduction of sanctions and amounted to 42.8% in 2016, 2017 saw the first signs of recovery in trade.
  • The customs data show that the EU's share in Russia's trade turnover totalled 45.4% (USD 17.4 billion) in January 2017, up 3.7 p.p. y-o-y. Exports and imports increased by 60.2% and 45%, respectively.

According to conservative estimates, the potential partnership would bring the cumulative growth rate of the Russian GDP to 0.8% in the short run and up to 2% in the long run. The performance of Kazakhstan would be less impressive with the growth rates of 0.6% and 1.2%, respectively, while in Belarus the GDP would contract by 0.6% in the short term before going back to the baseline.

The potential areas of cooperation between the EU and the EAEU include trade in goods and services, free movement of capital and labour, visa-free travel, joint infrastructure development projects, regulatory frameworks and innovations.

The success of the dialogue will primarily depend on the ability to reach a consensus in the realm of energy security. The EU seeks to ensure a stable supply of energy resources, predictable pricing policies and undisrupted deliveries, while the EAEU is keen to keep the demand unchanged and protect itself from dumping.

  • Pursuant to the Eurasian Economic Commission's resolution, a single electric power market in the EAEU should be created by 2019, while a single oil and gas market should become a reality by 2025.
  • The reforms for the EAEU energy markets were developed drawing on the EU experience and taking into account the WTO regulations. This should enhance the compatibility of the two global partnerships.

The alignment of the EU and the EAEU is a complex mission posing technical and geopolitical challenges, as there has been no precedent of the two continental integration groupings signing a bilateral agreement.

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