The Eurasian Economic Union among Russia, Belarus, Kazakhstan, Armenia and the Kyrgyz Republic: Can It Succeed Where Its Predecessor Failed?

Abstract

In 2010, Russia, Belarus and Kazakhstan formed the Eurasian Customs Union and imposed the Russian tariff as the common external tariff of the Customs Union. In 2015 they formed the Eurasian Economic Union (EAEU) designed to promote the free flow of goods, services, labor and capital, as Armenia and the Kyrgyz Republic joined. Armenia, the Kyrgyz Republic and Kazakhstan all had to approximately double their average external tariff to implement the common external tariff. Russia has benefited from additional exports under the protection of the higher tariffs. Estimates reveal that the tariff changes resulted in substantial transfers from Kazakhstan to Russia (with similar impacts expected for Armenia and the Kyrgyz Republic) as importers in Kazakhstan now purchase lower quality or higher priced Russian imports that are protected under the tariff umbrella of the common external tariff. Transfers from the Central Asian countries to Russia were the reason the predecessor to the EAEU (known as EurAsEC) failed, so this bodes badly for the ultimate success of the EAEU. But Russia’s accession to the World Trade Organization will substantially lower the common external tariff and reduce the transfers to Russia. Further, unlike EurAsEC, the EAEU aims to employ “deep integration,�? e.g., to reduce non-tariff barriers and improve trade facilitation, create a single market, reduce trade distorting agricultural subsidies and harmonize some regulations. Estimates show that if substantial progress could be made in trade facilitation and reducing non-tariff barriers, this could make the Customs Union positive for Kazakhstan and other potential Central Asian members. And the right to work for migrants may dominate these issues for Armenia and the Kyrgyz Republic. Unfortunately, as of early 2016, the EAEU has not improved trade facilitation or reduced non-tariff barriers. To effectively implement the objectives of the EAEU, however, Russia will need to take the lead in ceding real authority to the Eurasian Commission and press for reforms, including those that reduce the substantial internal non-tariff barriers.