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The Eurasian Union: A Budding Challenge to Regional Dynamics

August 25th, 2015

By Davis Florick – Junior Fellow

Amidst the turmoil in Europe and Asia in recent years, perhaps the most troubling challenge has gone virtually unnoticed and largely unopposed. The encroachment of the European Union (EU), United States (US), and even China into the former Warsaw Pact and Soviet republics has motivated the Putin Administration to formulate a new, more assertive policy along its periphery. As one part of the effort to stem the tide of forces the Kremlin views as adversarial, Moscow has pursued economic integration. The Eurasian Economic Union (EEU) has become the vehicle for Russia to realize its economic and political objectives. Far more successful than any of its other post-Soviet predecessors, this policy making entity has quickly risen in prominence over recent years. Today, it enjoys the membership of Armenia, Belarus, Kazakhstan, and Kyrgyzstan as well as Russia, and the potential exists for more states to join. Designed in a similar fashion to the EU, where population distributions shape representation, the EEU puts Russia in a position to dominate its partners. Tragically, this organization is already beginning to show signs of a turn towards to pseudo-imperial control. Most troubling, the dearth of a response from Beijing, Brussels, and Washington has only emboldened Moscow to continue pursuing expansion. Commensurately, states the Kremlin is currently targeting have, in some cases, viewed inaction by others as a sign of weakness. In this environment, the EU and US are running the risk of standing aside as the Putin Administration capitalizes on the strides it has made and further expands its sphere of influence at the cost of its primary competitors.

Before discussing future possibilities for the EEU, one must understand its foundational background. Most notably, the community serves as a vital opportunity for the new Russia to capitalize on the trade space its Tsarist and Soviet predecessors left behind. The organization leverages the natural advantages Moscow enjoys along its near abroad and further elevates them by doubling-down on these valuable nodes. In particular, defense and economic dependencies many of these states have vis-à-vis Russia today serve as major motivating factors in choosing membership. For instance, a state like Armenia finds itself in a perpetual conflict with Azerbaijan over the Nagorno-Karabakh region, which places it in need of Russian defense assistance. Likewise, Kazakhstan’s infrastructure in many ways has the dubious distinction of sharing a symbiotic relationship with Moscow’s, a legacy from the Soviet era. Perhaps most complex of all, countries such as Kyrgyzstan are heavily dependent on remittances from its vast northern neighbor to sustain a struggling economy. The Kremlin has been able to prey upon each of these vulnerabilities and more to drive EEU membership. As each of these weak former Soviet republics are maneuvered by circumstances into joining the EEU community, their reliance on Moscow will be compounded and amplified.

As one-time compatriots prey upon their flaws, new members to the EEU find themselves forfeiting sovereignty to the benefit of a Russian-dominated entity. While the community has stressed a number of characteristics to its members and potential new entrants, three warrant discussing forthwith. First, in the energy realm, state parties are likely to receive preferential agreements that seem appealing and innocuous in the short term, but could lead to Moscow monopolizing the energy markets for a number of its smaller partners. Second, tariff reform leading to reductions and elimination carries the potential to reduce barriers to entry for firms attempting to cross state lines. Russian corporations stand the most to benefit as they can generally produce low-cost goods in higher quantities for less than their EEU colleagues can.  The absence of trade barriers has already begun to open a whole new series of markets for Russian firms, but not for other states. Third, the Kremlin can now utilize the labor supply and infrastructure of its partners as a means to circumvent its own obstacles. Specifically, due to its own aging population and a lack of investment in physical capital, labor costs in Russia are increasing even while the industrial base decays. The gradual decline that has taken place since the fall of the Soviet Union, especially a lack of investments in production effectiveness and efficiency, is forcing Russian firms to look elsewhere to increase output. Moving production abroad could save costs for Moscow’s business elite due to affordable labor and physical capital costs. The broader economic implications of the agreement are likely to create and reaffirm sinews that make it more difficult for the organization’s smaller states to break away from Russia’s influence.

Beyond the expected and traditional economic roles of the EEU, ongoing political factors have motivated Russia’s strident advocacy of the organization. The collapse of the Warsaw Pact and Soviet Union created a void between the established states of the European Union and a retreating Russia. From the west, the EU slowly began adding new members while in the east, China went about building new relationships in Central Asia. The US added its assistance by fostering defense and economic relationships to assist many of the post-communist states in their rebuilding efforts. With its sphere of influence steadily eroding, Moscow has faced three very real concerns. First, the removal of the long-time buffer zone which its former communist brethren had provided has led senior leaders in the Kremlin to worry over potential foreign aggression. Second, with its former partners’ economic integration elsewhere, Moscow has slowly been losing the advantageous trade relationships that it once enjoyed. Third, the decline of the Russian population, particularly the ethnic Slavs, has especially motivated the Putin Administration to reincorporate ethnic Slavic enclaves that currently reside in its former republics. These three issues, driven largely by political considerations, have played a major role in scoping and shaping the EEU.

The EEU’s strength must also be measured by the trials Russia has gone through with the EEU’s forerunners. During the 1990’s, the Kremlin responded to the collapse of its old empire with the Commonwealth of Independent States and Collective Security Treaty Organization, but both of those had trouble gaining traction due to limited jurisdiction and Russia’s failing economy.  More recently, the Russians formed the EEU with a broader mandate and more erstwhile financial support as the next mechanism to reestablish its footing in the near abroad. Unfortunately for many of the states in Central Asia, the Caucasus, and Eastern Europe, the advance of the EU, China, and even the US has not taken place fast enough. Thus, at the same time that the EU and US stepped in to support the Ukraine, Armenia and Kyrgyzstan were cajoled into joining the EEU. In the future, the pervasiveness of some of the organization’s short term economic benefits could enable it to gain leverage rapidly with its new members, thereby limiting their long term options.  Regrettably, the degree of permanence that the EEU could present could in turn have a direct negative impact on the freedom and openness that has been developing in the former Soviet republics.

Moving forward, this Russia-led group is poised to spread into a number of other states.  Former Soviet republics such as Azerbaijan, Moldova, and Tajikistan are all squarely in Moscow’s sights. If the Kremlin is able to expand the EEU further into its near abroad, there may be grave implications. Expansion into additional former Soviet states would demonstrate to other nations vulnerable to great power entreaties, in Southeast Asia for instance, that the US is not prepared to present a credible alternative. Additionally, the erosion of progress made since the fall of the Soviet Union would be a considerable blow to the EU and US. If Moscow could generate momentum from adding additional states along its periphery, then it might be able to spread membership even further afield. For instance, Syria has already begun discussions on joining the EEU. Interest from Damascus may seem inconsequential, but Moscow does not view this alliance through a purely economic lens. The political benefits of collecting equities across Eurasia, and potentially globally, should not go unnoticed. Many in the West may not place much value in Russia’s burgeoning alliance today or in the next few years, but it serves as a tool to support those alienated or left behind by the EU and US.

Today, the current collection of EEU members, and some of the ones mentioned as possible additions, may appear unimpressive; but only a few changes in the international markets could generate a collective change in EEU fortunes. To track for potential inflection points, an acute focus must be paid to the energy sector, especially because of what a rise in oil and natural gas prices might mean for Russia. The additional revenue that Moscow specifically could collect would allow it to invest in programs across the EEU, thereby increasingly engendering dependencies with the other state parties. Complicating matters inexorably, the organization’s more vulnerable participants may garner substantial benefits from such blatant bribery. This would only rally additional struggling states to the Russia-backed organization. It bears repeating that from a political standpoint, value is to be had in recruiting both vibrant and vulnerable states on a case-by-case basis. Returning to the EEU’s long term prospects, inevitably its economic success – even if it is largely resource driven – could convince others of the utility membership would provide. If Moscow is allowed to continue filling in the gap that exists between it and entities like the EU, China, and the US, then it could seriously erode Washington’s credibility internationally.  Indeed, considerable economic and political benefits for Russia can result from such a series of events.

Over the next decade or two, Moscow’s position within the international system could be significantly informed by the success or failure of the EEU. If the organization is able to make economic headway, it could serve as a lure for the Kremlin to begin reasserting itself along its periphery. Suddenly what appeared to be an open space throughout Eastern Europe, the Caucasus, and Central Asia would now be returning to the Russian fold. This represents a significant departure from the geopolitical standing of the former Soviet republics over the last twenty-five years. On the opposite end of the globe, Washington would be particularly laid bare. The ability of the US to spread its message and ideals across the world would be seriously questioned by a changing of the tide in the former Soviet republics. Over the long term, the lack of an adequate response from Washington, and Brussels to a lesser extent, could signify a lack of resolve to allies and partners in other vulnerable regions.  Beijing would not be immune to questions either as its economic interests, especially in Central Asia, could be subject to EEU trade policies. Indeed, Russia’s tools and capabilities crafted to leverage its defense and economic assets will enable it to expand its own sphere of influence to the detriment of its main rivals.

The emergence of the EEU as a counterweight to the EU, US, and China poses a direct challenge to the efforts of much of the international community since the fall of the Soviet Union.  If Moscow is allowed to continue building momentum with a steady stream of new member states, it will quickly erode the considerable work that has been done in the former Soviet republics since the end of the Cold War. To date, the rejection of the EEU by the Ukraine is the one example that indicates how Russia’s imperial designs can be thwarted. Yet even then, the Kremlin was able to respond by adding both Armenia and Kyrgyzstan to its organization. To stem its growth, the EU and US must work together to begin improving the economic conditions in the states most susceptible to Russian designs. Washington and Brussels must simultaneously cement their staunch political commitments. These actions will be met by venomous rhetoric from the Putin Administration, but Moscow’s ire should not paralyze others. Rather, bringing more members into the EU and establishing other partnerships would substantially curb Russia’s ability to expand its influence. Invariably, the only way to prevent further expansion of the EEU is more demonstrative action on the part of both Brussels and Washington.

About Davis Florick

Davis Florick is a Senior Fellow in the HSC Security and Defence division, a Special Assistant to the United States Deputy Under Secretary of Defense for Policy, and a James A. Kelly non-resident fellow with the Pacific Forum. He has completed his Executive MBA at the University of Virginia Darden School of Business, holds a master’s in East-West Studies at Creighton University, and will be starting his PhD in International Relations at George Mason University in Fall, 2018. His foreign relations areas of concentration include East Asia and the former Warsaw Pact and Soviet Union. Davis has been published in International Affairs Forum, the World Business Institute, and the International Affairs Review, the Diplomat and RealClearDefense. He was also a member of the 2015 Nuclear Scholars Initiative with the Center for Strategic and International Studies.